The massive amount of changes that happened with the 2017 Tax Act and Cuts and Jobs Act affected numerous issues and explaining what is coded to where with clients is a valuable piece of advice in order to make sure that money doesn’t get left on the table through errors.
What is Invalid
Related activities generally considered entertainment, amusement or recreation.
- Golf outings/tournaments
- Concert tickets
- Sporting events
- Theater tickets
- Outdoor Festivals
What is Still Valid
Related activities can be deducted at 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is PRESENT and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event. What that means, is that you can’t deduct a sports outing event’s tickets if you’re taking a client, however any food/beverage those expenses can be deducted at 50%.
Employee meal deductions such as holiday parties and company-wide picnics are still considered 100%. Smaller meal deductions outside of this that are specific for employees only can be deducted if they are for the “convenience of the employer” to situations in which the meals are “necessary for the employee to property discharge the duties of a particular job position.” This would be covering your employees if they are working overtime, you are needing to do a work retreat, etc.
How should all of this be coded to cover yourself in an audit? Three separate accounts should be utilized in your Chart of Accounts and examples are as follows:
- 100% employee meals
- 50% meals
- Nondeductible entertainment
You do need to still track all business expenses for reconciliation purposes, but you need to let your tax preparer know what and how much you are allowed to deduct to protect yourself for any potential audits. Make sure all of your receipts are documented with each transaction, and in QuickBooks® there’s an option to attach the receipt for each transaction utilizing the paper clip icon, as well as a memo item to document what the expense is for. This helps avoid having stacks of paper and potential ink drying on the receipt. Documentation is key to any successful business.
Dwayne J. Briscoe