Government Clamps Down on “Deductible Fun” for Businesses

The new Tax Cuts and Jobs Act (TCJA) can be confusing for many– especially small business owners.  Although many aspects of the TCJA have been discussed, one component of the tax law that has not received much attention deals with significant changes to meals and entertainment deductibility.

In the past, taking a client to a football game or bowling alley was 50% deductible.  Under the new tax law, a business cannot deduct any portion of this expense.  Holiday parties and staff appreciation celebrations are still fully deductible, but staff meetings are no longer 100% deductible.  For example, catering a lunch-time staff meeting can no longer be considered a fully deductible “employee expense.”  Meals at a convention or conference and recruiting-related meals are still 50% deductible.  The chart below highlights the nature of these different deductions:

Expense Prior Rule New Rule
Holiday Parties 100% Deductible 100% Deductible
Birthday Celebrations 100% Deductible 100% Deductible
Staff Appreciation 100% Deductible 100% Deductible
Staff Meetings 100% Deductible 50% Deductible
Meals for Convenience of Employer 100% Deductible 50% Deductible
Convention and Meeting Meals 50% Deductible 50% Deductible
Client Entertainment 50% Deductible No Deduction

Perhaps the most noticeable impact this new rule will have on your business is not related to the tax deductibility, but to the additional accounting distinction that will need to be made between meals and entertainment.  Those two expenses have been linked for such a long time that accounting for meals and entertainment in two different ways could be tricky.  Complicating matters is the number of employees and executives that are unaccustomed to making the distinction.

Also, additional consideration will need to be given when there is some gray area between meals and entertainment.  For example, some restaurants offer entertainment along with meal presentation.  Does any distinction need to be made between the two components of that event?  In another example, if you take a client out for an evening of bowling at a fancy bowling venue, and you order heavy appetizers for the group, does the invoice need to be split between the entertainment and meal components?  Or, does the presence of food move everything into the 50% deductible column?

More guidance is likely to be published by the IRS in coming months, so stay tuned for that.  In the meantime, our recommendation would be to track both meals and entertainment expenditures in good detail and with documentation, so the appropriate determinations can be made once that clarification is available.

If you have questions about the new tax laws, would like more information about what you can and can’t deduct, or would like to request a speaker on this topic for your organization or event, contact a PYA executive below at (800) 270-9629.


Access additional tax reform insights here

Eric Elliott

Eric Elliott


Emily Smithson

Emily Smithson


Related Posts
Large data breaches impacting millions regularly make news headlines; and, increasingly, small businesses are becoming frequent targets of cyberattacks.  In response, states across the country are beginning to introduce laws...
Read More

A Matter of Time: States Adopt New Cyber Security Requirements

PYA ranks on INSIDE Public Accounting’s list of Top 100 Accounting Firms for the third consecutive year.  PYA, a national accounting and management consulting firm, has been ranked as a...
Read More

PYA Again Among IPA’s Top 100 Largest Accounting Firms

Several PYA employees were acknowledged for their achievements in mid-year promotions.   PYA, a professional services firm, has announced that Matt Neilson is the latest principal to join its executive team.  In addition,...
Read More

PYA Announces Several Mid-Year Promotions

In the nonprofit world, organizations are fueled and sustained by generous contributions and grants, which are used to support the organization’s mission.  Although such funding can often be the deciding...
Read More

“Threading the Needle”—Accounting Standards Update Closes Hole in Nonprofit Grant Guidance

Thought leader and PYA Principal Barry Mathis recently was interviewed in an article, “Inertia Is a Risk with Myriad Security Resources; Overlap May Help.”  Published in the Report on Medicare...
Read More

Inertia Is a Risk with Myriad Security Resources; Overlap May Help

Certain employees of governmental and not-for-profit organizations may qualify for a program that offers student loan forgiveness with zero tax liability.   The Public Service Loan Forgiveness (PSLF) Program gives full-time...
Read More

Tax-Free Student Loan Forgiveness for Eligible Public Servants

PYA, a national professional services firm headquartered in Knoxville, has been awarded a 2018 Top Workplaces honor by the Knoxville News Sentinel. The award is a result of employee feedback...
Read More

Knoxville News Sentinel Names PYA a Winner of the Greater Knoxville Area 2018 Top Workplaces Award

PYA has released a new white paper explaining how competing health systems may overcome antitrust obstacles to merger by formally committing to population health improvement in the communities they serve....
Read More

PYA White Paper Explains How Pro-Competitive Impacts of Hospital Consolidation Can Overcome Antitrust Concerns

As businesses consider the impact of the Tax Cuts and Jobs Act (TCJA) introduced late last year, the corporate tax rate is receiving substantial attention.  However, according to a 2014...
Read More

2018 Tax Reform – The Excess Loss Limitation Likely to Squeeze Owners of Cyclical Businesses

Share This Insight

If you received value from this article, please share it with your network (e.g., Facebook, Twitter, LinkedIn). Icons below for your convenience.

Stay Current

PYA Population Health Ascend

PYA Healthcare Blog

PYA Thought Leadership Services

The Healthcare Loop