By Jennifer Cranford, CPA
The 2017 Tax Reform Act, which was signed in to law December 22, 2017, includes a number of changes in deductibility of meals, entertainment costs, club dues, and employee transportation benefits as of January 1, 2018.
Business meals should continue to be 50% deductible assuming the meals meet the long-standing business purpose requirements and documentation and are not lavish or extravagant under the circumstances. In addition, the taxpayer or an employee must be present at the meal. This includes, but is not limited to, meals while traveling for business and meals for client meetings.
Employee meals provided by an employer on-site and for the convenience of the employer are now 50% deductible as they were previously 100% deductible. For example, a staff luncheon to discuss business is now 50% deductible. Moreover, snacks, coffee, soda or tea purchased for the employee breakroom is also 50% deductible under the new rules.
Employee recreation events (and related meals) offered to the majority of employees (not just for highly compensated employees) continue to be 100% deductible. Employee events such as summer picnic, winter holiday party, company bowling or softball are examples of recreational events. It is important to note that the value received by the employee must continue to be de minimus with respect to the employee. For example, a company sponsored trip to Hawaii would not be de minims in value.
Entertainment, amusement and recreation activities’ expenses are now non-deductible regardless of business purpose. This includes, but is not limited to, the price of tickets to sporting events, the cost of a round (or more) of golf and generally any other events which include an element of “fun.”
“Club” dues paid to many civic, social, and public service organizations are no longer deductible as well. This includes dues paid to organizations such as Kiwanis, Lions, Rotary and other similar organizations.
Employer paid parking passes, mass transit passes, and commuting allowances are no longer deductible by the employer. However, the benefits are still non-taxable to the employee, up to $255 per month, for transit passes and parking passes.
We might suggest reviewing your general ledger accounts now. You should consider tracking business meals (50% deductible), employee meals (50% deductible), employee recreational events and meals (100%), and entertainment (non-deductible). Club dues and employer paid parking should also be tracked separately as those items are no longer dedcutible. Please contact our office at 541.687.1170, if you have additional questions.