Due to the changes from the Tax Cuts and Jobs Act regarding meals and entertainment expenses, we suggest you reevaluate your bookkeeping system and account names for 2018. If you currently only have one account for all meals and entertainment expenses, you may want to split the account into three accounts: Entertainment Expense, which are no longer deductible, Meals Expense – 100% Deductible, and Meals Expenses – 50% Deductible. This will prevent confusion at year end when determining the deductibility of an expense. Meals associated with overnight business travel and travel outside of a normal commute are still 50% deductible in 2018. Meals associated with clients, prospects, and business partners, officers, or directors are expected to continue to be 50%. We expect the IRS to provide more guidance on which meals qualify as 50% deductible later in the year. Employee meals for the convenience of the employer or for required business meetings are now 50% deductible instead of 100% deductible. Year-end parties for employees and team building recreational activities with employees are still 100% deductible.
Now would also be a good time to reevaluate how you’re documenting your business meals and entertainment expenses. It is important to be able to substantiate your business meals and entertainment expenses. This is not a change from the Tax Cuts and Jobs Act but could be an audit risk. The IRS requires that these expenses have the following documentation:
- The time and location of the expense,
- The amount of the expense,
- The business purpose of the expense, and
- The names and business relationships of who you are meeting with.
- Please don’t hesitate to contact us if you have any questions regarding the Tax Cuts and Jobs Act.
We suggest keeping all receipts and documenting the above information with that receipt. Insufficient documentation may cause an expense to be nondeductible in the case of an audit. Please don’t hesitate to contact us if you have any questions regarding the Tax Cuts and Jobs Act.
Written by Mitch Green