The Tax Cuts and Jobs Act: Entertainment Expenses

Effective January 1, 2018, the Tax Cuts and Jobs Act of 2017 generally disallows the business deduction for entertainment expenses. Under the prior law, the deduction for entertainment expenses was generally limited to 50% of the expense. The deduction for meals continues to be subject to the 50% limitation provided the expense is directly related to (or associated) with the active conduct of the company’s trade or business. The 100% deduction for expenses incurred for recreational, social, or similar activities (e.g., company picnic) primarily for the benefit of employees has not been changed.
 
Additionally, for expenses paid after December 31, 2017 and before December 31, 2025, the new law expands the 50% limitation to expenses associated with providing food and beverages to employees on the employer’s premises and for the convenience of the employer. After December 31, 2025 these expenses will not be deductible.
 
Most business have historically tracked “Meals and Entertainment” expenses in one general ledger account. We recommend that businesses create separate accounts in their general ledgers that identify those expenses that are subject to the 50% limitation, those that are disallowed, and those that are fully deductible.
 
If you have any questions about how Tax Cuts and Jobs Act will affect your business, please contact our office at 251-410-6700.