Contractor in Charge is committed to making sure you know about important events that help you know and love your numbers. This is what prompted this special blog to our customers and community regarding a change in 2018 pertaining to the Travel & Entertainment, Business Meals, and Fringe Benefits expenses in your business activities.
We were recently made aware by our sister company and franchise headquarters, Supporting Strategies, that the new tax reform law will have effects on your 2018 tax preparation. Even though we are not tax professionals, our tax and CPA partners advised us to make this information available to our clients and recommend that we revise our client’s chart of accounts to better organize and clarify these expenses beginning in 2018.
Tax reform law, commonly referred to as H.R. 1 Tax Cuts and Jobs Act of 2017, has changed the deductibility of certain meals, entertainment, and transportation expenses. Prior to the Tax Cuts and Job Act, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.
Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule will now also apply to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be non-deductible.
To maximize tax deductions and save time for tax preparation, we recommend setting up separate general ledger accounts for business meals (50% deductible), entertainment (non-deductible) and recreational/social employee expenses (100% deductible).
- Travel & Entertainment: Business Meals – Meals associated with a business meeting.*
- Travel & Entertainment: Travel Meals – Meals provided to employees while traveling for business. (50% deductible)
- Travel & Entertainment: Staff Meals – Office Holiday Parties, lunch with staff, etc. (100% deductible)
- Travel & Entertainment: Staff Meals – Local Office Work – Meals provided to an employee in the course of their work (i.e. working late, working weekends, etc.). (50% deductible up until 2025)
- Travel & Entertainment: Entertainment – Entertainment provided to clients (no business conducted, i.e. tickets to a ball game, etc.). (not deductible)
*According to our CPA, it is unclear how the IRS will interpret the difference between deductible business meals (i.e. a business meeting over lunch) and entertaining a client over dinner where no actual business is conducted. We will be recommending that all “Business Meals” in this account but clearly mark those that are related to a meal where business was actually conducted vs those where it was not.
Here is a chart for your reference. We recommend you discuss this with your tax preparers and professionals regarding your business needs.
For more information you can refer to IRS Publication https://www.irs.gov/pub/irs-prior/p463–2017.pdf
If you have any questions, please reach out to Lynn Wise at firstname.lastname@example.org.