The Tax Cuts and Jobs Act (TCJA) made sweeping changes to numerous sections of our tax law. Many new provisions have been widely discussed, but meals and entertainment, which has not been as extensively publicized, deserves thoughtful consideration. It’s not a significant new tax benefit; in fact, it further limits deductions for taxpayers. But it’s pervasive – it will affect almost every business filer and requires a change to a company’s recordkeeping. In order to avoid filing delays, increased compliance costs or (worst of all) the inadvertent disallowance of costs that are either partially or fully deductible, most taxpayers need to make an immediate change in bookkeeping and accounting procedures.

Before the TCJA, many meal and entertainment expenses were comingled in one trial balance account. As of January 1, 2018, the deductibility of these items has been significantly altered. To help you properly classify these expenses, and maximize your deductions, read on. Below we explore different categories of meals and entertainment, each of which should be tracked separately.

Entertainment Expenses

Business Meals Expenses

Employer Provided Meals

Fully Deductible Meals and Entertainment Items

Previous Law and TCJA Law ~ These items remain fully deductible entertainment expenses. Be sure to track and account for these items separately so they are not disallowed.

How to Become/Remain Compliant

  • Make sure your general ledgers and accounting systems have a category to record just pure “entertainment” expenses.
  • Bifurcate “entertainment” from “business meals”, “employer-provided meals”, “fully deductible meals and entertainment” (described above: compensation, reimbursements, etc.) and travel expenses. (Travel is 100% deductible except for meals portion of travel which is 50 percent deductible).
  • Don’t overlook amounts that are not subject to disallowance or are disallowed at 50 percent, as detailed above. This would lead to inadvertently limiting fully deductible expenses.