In an effort to offset revenue lost under the
new Tax Cuts and Jobs Act (TCJA), several popular business expenses are now
subject to deductibility limits or were eliminated entirely. One such benefit that was eliminated was the
deduction for entertainment expenses.
Under pre-TCJA law, a 50% tax deduction was
allowed for entertainment, amusement, or recreation expenses that were directly
related to the active conduct of a trade or business, so long as the business
had proper documentation and could prove the expense was ordinary and necessary. The Tax Cuts and Jobs Act has repealed
this rule and disallowed the deduction, regardless if the expenses are directly
related to or associated with an active trade or business.
Historically, entertainment expenses were
recorded on a business’s books under the expense account of ‘Meals and
Entertainment,’ since both of these expenses were limited to a 50%
deductibility for tax purposes. While
entertainment expenses have been repealed, the new law maintains the deduction
for business related meal expenses.
Therefore, beginning in 2018, businesses should begin recording these
expenses into two separate expense accounts.
This will allow for easier distinction between business related meals,
which are still 50% deductible, and entertainment expenses, which are
non-deductible. This simple accounting change
will allow business owners to better budget for these expenses, as well as
improve upon year-end accounting and tax return preparation processing.
Call
us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.
