Prior to 2017, Meals and Entertainment related expenses were typically 50% deductible. In 2017, the Tax Cuts and Jobs Act, what is known as the Trump Tax Laws, changed that.
In the image below we’ll walk through the new rules from 2018 through 2023:
Prior to 2017 entertainment was 50% deductible. As you can see in the table, entertainment is no longer deductible. As it relates to 2021 and 2022, new tax laws were enacted through COVID related legislation . Through that process, entertainment expenses are still not deductible at all. On the other hand, meals provided by a restaurant went from 50% deductible to 100% deductible. One could speculate this has been done in the last two years to help boost the revenue of restaurants and help keep restaurants in business through the pandemic.
Snacks provided in a break room by an employer are 50% deductible. In situations where customers are visiting your location and you provide customer snacks, those snacks are 100% tax deductible. In the case of events for employees, for example company-wide parties, those expenses are all 100% deductible.
What does this change mean for businesses?
First, we have an increase in the amount of expenses that we can deduct. Second, is the need to account for these different types of expenses separately. One way to do this is to set up separate accounts in your chart of accounts and have your accounting team track the expenses for these categories separately.
Club dues should be accounted for separately as well. Many of our clients are members of private clubs, and club dues are not tax deductible.
If you have questions or you’d like to discuss this information further, please send us an email or give us a ring.