With the recent passage of the 2017 Tax Cut and Jobs Act comes a big change to business entertainment deductions. The 1986 Tax Reform Act reduced the business entertainment deduction to 80 percent. Then, in 1993 it was reduced again to 50 percent. The recent tax reform has completely done away with business entertainment deductions, effective January 1, 2018.
For example, during 2017, you could have taken a prospect or client to a business dinner followed by a ballgame and deducted 50 percent of all the monies spent, providing you passed some tax law tests on business discussions and associated entertainment.
What Business Entertainment Is No Longer Deductible...
Here's a short list of some types of business entertainment that are no longer deductible as of January 1, 2018:
- Business meals with clients or prospects
- Tickets to sporting events (football, baseball, basketball, soccer, etc.)
- Disney World
Tom is a real estate sales professional. He sold a home to Bob and Mary, who moved into their home about a month ago. Tom takes Bob and Mary to dinner with the purpose of asking for referrals and also examining what he could have done better during the sales process.
Because the business dinner occurs in 2018, Tom gets no deduction for his business dinner.
The recent tax reform prohibits deductible entertainment regardless of your business discussion, negotiation, business meeting, or legitimate business transaction. You can no longer deduct entertainment that has as its mission the generation of business income or other specif business benefit.
As always, our office is glad to discuss these changes and how they might affect your business going forward. Feel free to contact our office anytime to discuss your specific situation.