lutz logo
lutz logo
  • Services
  • News & Insights
  • About
  • Client Portal
Search
  • Services
  • Accounting
  • Consulting
  • Financial
  • M&A
  • Talent
  • Tech
  • Accounting Services
Services
  • Audit & Assurance
  • Employee Benefit Plans
  • Client Advisory Services
  • Outsourced Accounting
  • Tax
  • State & Local Tax
View All
Industries
  • Agribusiness
  • Construction
  • Family Office
  • Healthcare
  • Manufacturing & Distribution
  • Nonprofit
View All
News & Insights
Website Featured Content Images-2
Blog
Are You Prepared? Financial Access Checklist for Spouses

Share this checklist with your spouse to assure you each have access to manage important financial tasks independently.

Read More
  • Consulting Services
Services
  • Business Valuation
  • Healthcare Consulting
  • Internal Control Assessment
  • Litigation Support & Forensic
  • Risk Assessment
View All
Resources
Website Featured Content Images (1)-1
Guide
What is a Comprehensive Risk Assessment?

To start managing your business's risk, you will need to conduct a comprehensive risk assessment.

Read More
Business Insights
Website Featured Content Images (2)-1
Blog
Top 3 Financial KPIs Every Business Owner Should Track

Key Performance Indicators (KPIs) can help illustrate your business’s financial health and show whether your business will turn a profit.

Read More
  • Financial Services
Services
  • Financial Planning
  • Investment Advisory
  • Retirement Plan Services
  • Pooled Employer 401(k) Plan
View All
Resources
  • Lutz Financial Blog
  • Our Team
  • Client Portal
  • Charles Schwab Login
  • TD Ameritrade Login
Contact Us
NEWS & INSIGHTS
Website Featured Content Images
MARKET COMMENTARY
Financial Market Updates

Want to receive financial market updates straight to your inbox? Sign up below!

Subscribe
  • M&A Services
Services
  • Sell-Side Representation
  • Transaction Advisory
  • Exit Planning
View All
Resources
Website Featured Content Images (3)
Ebook
7 Factors to Consider Before Selling Your Business

We give you exclusive insights on the business sale transaction process to help you answer seven important questions.

Read More
Business Insights
Website Featured Content Images (5)
Blog
Key Items to Review During Financial Due Diligence
The due diligence phase is critical for a Buyer to better understand the Target’s business operations and the overall quality of the financial information.
Read More
  • Talent Services
Services
  • Search & Staffing
  • Outsourced HR
  • HR Strategy & Coaching
  • HR Consulting
View All
Candidate Resources
  • Job Seeker Process
  • Current Opportunities
  • Lutz Internships
Contact Us
News & Insights
Website Featured Content Images-3
Blog
5 Benefits of Using Gallup's StrengthsFinder in Your Company

Gallup’s StrengthsFinder assessment can help you identify the strengths of the people working in your teams.

Read More
  • Tech Services
Services
  • Data Analytics & Insights
  • Outsourced IT
  • Technology Strategy
  • Software Consulting
View All
Resources
Website Featured Content Images (1)-2
Guide
Introducing Data Analytics into Your Business

Integrating data analytics into your business can help your revenue grow, the organization mitigate risk, or gain insight into your business operations.

Read More
Business Insights
Website Featured Content Images (2)-2
Blog
17 Tech Tips & Tricks

We’ve listed 17 shortcuts and hacks that will help you use tech to your advantage and make your daily life a little easier.

Read More
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
Webinars & Events
Events
Register Today

Register for an upcoming event or access our library of on-demand recordings.

View All
Lutz Talk Business
PODCAST
Tune In

Subscribe today for entrepreneurially spirited episodes of witty commentary for young professionals.

View All
Resources
EBOOKS & GUIDES
Download Now

Take a deep dive into challenging business topics with these free educational resources. 

View All
  • News & Insights
  • Business Insights
  • Webinars & Events
  • Lutz Talk Business
  • Resources
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
  • About
About

Lutz is a business solutions firm for people seeking a partner to help energize and heighten economic and organizational success.

Our Company
Our Team
Offices
Careers
Internships
Contact Us
  • Contact
Client Portal

Log in to your relevant client portal to access your account, upload documents, or make a payment.

Make a Payment
Accounting Client Portal
Financial Client Portal
Charles Schwab Login
TD Ameritrade Login
Send Files Securely
Contact Us
  • Accounting

Understanding New Rules Regarding Business Entertainment Deductions

March 14, 2018
Understanding New Rules Regarding Business Entertainment Deductions
If you own a business or work in a business, chances are that at some point, you’ve engaged in business-related entertainment of some sort. If so, you’ve probably reported those entertainment expenses as deductible on your taxes. While the recently passed Tax Cuts and Jobs Act of 2017 (the Act) has far-reaching impacts in many areas of tax law, one of those areas is business-related entertainment expenses. The reality is, the rules around entertainment expenses have changed—and if you or your business engages in business entertaining of any kind, it’s important you take note.

What’s changed?                                    

In general, the Act provides for stricter limits on the deductibility of business meals and entertainment expenses. Under the Act, entertainment expenses incurred or paid after Dec. 31, 2017 are  nondeductible unless they fall under the specific exceptions in Code Section 274(e). One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees.” As an example, office holiday parties are still deductible. Business meals provided for the convenience of the employer are now only 50 percent deductible, whereas before the Act, they were fully deductible. Barring further action by Congress, those meals will be nondeductible after 2025. Businesses should keep the new rules in mind as they plan their 2018 meals and entertainment budgets. See below for a list comparing the rules before and after the Act.  

Recreational Expenses for Employees (e.g., Christmas parties, annual picnics, or summer outings intended for employees generally)

  • 2017 Expense (Old Rule): 100% deductible
  • 2018 Expense (New Rule): 100% deductible
 

Entertaining Clients (Meals include food or beverages including beverages or drinks served apart from meals of the taxpayer and his business associates at a cocktail lounge or hotel bar not involving distracting influences such as a floor show Re. § 1.274-2(f)(2)(i)(b)

  • 2017 Expense (Old Rule): Entertainment & meals – 50% deductible
  • 2018 Expense (New Rule): Meals – 50% deductible
  • 2017 Expense (Old Rule): Event tickets, 50% deductible for face value of ticket; anything above face value is non-deductible
  • 2018 Expense (New Rule): No deduction for entertainment expenses
  • 2017 Expense (Old Rule): Tickets to qualified charitable events
    • Meal portion, 50% deductible
    • Remaining portion 100% deductible
  • 2018 Expense (New Rule): Same as 2017
 

Employee Travel Meals 

  • 2017 Expense (Old Rule): 50% deductible
  • 2018 Expense (New Rule): 50% deductible
 

Meals Provided for Convenience of Employer

  • 2017 Expense (Old Rule): 100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits, otherwise; 50% deductible
  • 2018 Expense (New Rule): 50% deductible (nondeductible after 2025)
 

What steps should your company take?

Review and revise your corporate entertainment policy as needed.

Company officials should review changes to the deduction disallowance with a qualified tax professional and amend this policy accordingly. Expenses must be “ordinary and necessary” in carrying on taxpayer’s trade or business and the taxpayer must show the expense was either “directly related to” or “associated with” the “active conduct” of such trade or business.
  • Directly related – active business discussions or meetings
  • Associated with – expense incurred directly preceding or following active discussions (same day or facts and circumstances test) Reg. §1.274-2(d)(3)(ii)
  • For record keeping, need amount, time, place, business purpose and business relationship

Establish specific general ledger accounts.

In order to easily identify how to treat various expenses during tax return preparation time, separate accounts should be established for three primary purposes:
  • To identify entertainment expenses that do not qualify for the business deduction
  • To identify those that fall under the 50 percent deduction limit
  • To identify those that are subject to a 100 percent deduction

Consider the inclusion of entertainment expense reimbursements in taxable wages.

In order to preserve the deductibility of the entertainment expense under compensation expense, consider including these amounts in the employees’ taxable wages. In addition, these wages can be “grossed up” where federal income tax and FICA taxes may be paid on behalf of the employee.  

Recent News & Insights

Accounting
Lutz adds Baker and Reinholz
Lutz, a Nebraska-based business solutions firm, recently added Trystin Baker and Andrew ...
Read More
Tech
Lutz Tech adds Agraz and Gasper
Lutz, a Nebraska-based business solutions firm, recently added German Agraz and Adam Gasper to ...
Read More
Accounting
Nebraska + Iowa Enact Pass-Through Entity Tax Laws
Iowa and Nebraska enacted Pass-Through Entity Tax (PTET) legislation during the 2023 ...
Read More
Market Commentary
A Few Large Growth Stocks Have Driven the Market in 2023 + Market Update
Story of the Week A Few Large Growth Stocks Have Driven the Market in 2023 After an incredibly ...
Read More
module-bg-desktop module-bg-mobile

Let’s get you where you want to go.

We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.
Contact Us
Lutz-Logo-white
  • Services
    • Accounting
    • Consulting
    • Financial
    • M&A
    • Talent
    • Tech
  • About
    • Our Company
    • Our Team
    • Offices
    • Careers
    • Internships
    • Current Opportunities
  • Client Portal
    • Make a Payment
    • Accounting Client Portal
    • Financial Client Portal
    • Send Files Securely
    Submit RFP
TOLL-FREE: 866.577.0780 | © Lutz & company, PC 2023 | Privacy Policy
Follow us on Facebook Follow us on LinkedIn Follow us on Twitter Follow us on Instagram Follow us on Facebook