John R. Bullis: Tax bill reduces entertainment deductions for businesses

Effective Jan. 1, 2018, the new Tax Cuts and Jobs Act reduced business expense deductions to zero for many types of business entertainment activities.

Now, business meals associated with entertainment with clients or prospects aren’t deductible. Some of the business meals you used to build your business, get new clients or meet with prospective customers are no longer an expense you can claim on your income tax return.

The new law also disallows business expenses for golf, skiing, tickets to sporting events and Disneyland. If you take a business customer, a supplier or a referral source for those activities, there’s no deduction, even if the meeting was important to your business.

This repeal of business entertainment will hurt some business owners more than others. But expenses directly related to business meetings of employees, stockholders, agents, or directors are still 50 percent deductible.

Why Congress did that isn’t clear. Most of the new law is business friendly.

If the cost of entertainment, amusement or recreation is treated as compensation to employees and is included as their wages for income tax purposes, it’s deductible.

When the expenses for recreational, social or similar activities (including facilities) are paid primarily for the benefit of employees, those expenses are deductible. But only if the employees aren’t highly compensated employees.

Expenses directly related and necessary to attendance at a business meeting or convention such as those held by chambers of commerce, real estate boards and similar events are deductible, but only for 50 percent of the cost of food and beverages is allowed.

It seems a full deduction is allowed for the cost of parties you do for your employees. Congress knows how to have fun.

More details on these types of expenses will probably be available when IRS gets around to writing regulations (to interpret what Congress said). However, you might keep in mind there are many regulations IRS is supposed to write that are still in draft form.

Did you hear? “No matter what happens in life, be good to people. Being good to people is a wonderful legacy to leave behind,” by Taylor Swift.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.