Individual tax filers and business owners should know about the Tax Cuts and Jobs Act of 2017 because it made significant changes to the deductibility of business meals and entertainment. Starting in 2018, entertainment expenses are no longer deductible, and most business meals are 50% deductible. Previously, entertainment expenses were 50% deductible and a broad array of business meals had the potential to be 100% deductible.
At Heemer, Klein & Company, PLLC, we understand certain things about how the Internal Revenue Service (IRS) works. For example, we anticipate that the IRS will heavily scrutinize these changes when reviewing tax returns. Therefore, it is important for business owners, their partners, and associates to properly enter and describe activities associated with entertainment, travel, meal costs, and other work-associated expenses.
Before planning work deductions, please consider the following categories:
- Entertainment Mileage
- Celebratory Meals
- Airfare for Travel
- Lodging for Travel
- Mileage for Travel
- Other Travel Expenses
- Nondeductible Dues
- Professional Dues and Meetings
Here are a few important rules attached to the Tax Cuts and Jobs Act of 2017 that every taxpayer should keep in mind before claiming work-related deductions.
Meals with a Client: For meals to be considered 50% deductible, you must discuss business during the meal, and these deductions must be classified as “meals.” However, if no business is discussed during the dining experience, the meal is NOT deductible for tax purposes and should be entered as “entertainment.”
Meals with Coworkers: Meals with employees and coworkers where the business is discussed are considered 50% deductible and should be classified as “meals.” However, if no business is discussed, the meal is NOT deductible for tax purposes and should be entered as “entertainment.”
Meals While Traveling: Meals taken while traveling for business are considered 50% deductible and should be classified as “meals.”
Celebratory Meals: Company activities, such as holiday parties, birthday, and anniversary celebrations, picnics, team-building activities, and other work activities are fully tax-deductible, and these expenses should be classified as “meals – celebratory.”
Entertainment: No tax deduction is allowed for entertainment, amusement, or recreation expenses. This includes tickets for not-for-profit high school or college sporting events, leased skyboxes for sporting events, transportation to and from sporting events, cover charges, taxes (on events), tips, and parking fees for entertainment events. These events are ALWAYS classified as “entertainment.”
Membership Dues and Fees: Generally, you are NOT permitted to deduct fees paid or incurred for membership in any club organized for business, pleasure, recreation, or for any social purpose. These fees include any associated with country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. On tax reports, these types of expenses should ALWAYS be classified as “nondeductible dues.”
Contact Heemer, Klein & Company, PLLC for Help with The Tax Cuts and Jobs Act of 2017 and Much More
At Heemer, Klein & Company, PLLC, we help individual taxpayers and business owners navigate regulations such as The Tax Cuts and Jobs Act of 2017. We can ensure that you get the best refund possible and avoid paying unnecessary fees down the road. Call us at (586) 751-6060 in Warren, (586) 727-5145 in Richmond, or (586) 751-1040 in Sterling Heights. Or, you can reach out to us with any questions you may have about our tax services through the contact form on our website.