What You Need to Know Now About Meals and Entertainment Expenses
In this segment, Carolyn Dolci—partner and leader in EisnerAmper’s Law Firm Services Group—discusses what you need to know about expensing meals and entertainment under the 2017 Tax Cuts and Jobs Act.
Dave Plaskow: Hello and welcome to EisnerAmper’s professional services podcast series, where we try to dig a little deeper into those topics that matter most to you following the Tax Cuts and Jobs Acts of 2017, aka Tax Reform. In this episode we’re covering what professional services firms need to do now related to meals and entertainment. I’m Dave Plaskow and with me today is Caroline Dolci, Tax Partner and a leader in EisnerAmper’s Professional Services Group. Caroline, welcome and thanks for being here.
Carolyn Dolci: Thanks Dave, happy to be here.
DP: So Carolyn, it’s been interesting to see where everything has fallen into place post tax reform.
CD:Yes, that’s for sure.
DP:Let’s try and break it down for our listeners. What are a few key issues professional services firms need to be aware of concerning meals and entertainment?
CD:I have to preface my discussion by saying we’re still learning every day. The regs are not out yet on this.
CD:Having that said, there are important takeaways for both those amounts paid or incurred after December 31 of 2017.
DP:Got it. Let’s dive into the changes for expenses paid or incurred after December 31, 2017.
CD:Expenses paid or incurred after December 31, 2017, for entertainment, amusement or recreation are now nondeductible. This includes the facilities for these activities, even if they’re business related. So a golf outing, sporting tickets or a Broadway show with a client would now be nondeductible.
CD:A firm could still claim 50% for business meals and meal at the entertainment event, provided that business is discussed. You should keep good records and substantiation for this.
CD:Certain amounts were and still are 100% deductible, and there’s no change here. These are amounts that are put on an employee’s W2 or on a service provider’s 1099. Items that are made available to the general public, expenses for goods and services that are sold to customers like a restaurant, and nondiscriminatory employee recreation and social activities including their facilities. This means you can still have your holiday party or summer picnic with your employees as long as everybody is invited from the firm and get 100% deduction. There are amounts that were 50% deductible and are still 50% deductible, so food and beverages that you consume while you are on a business trip or expenses that are directly related to a firm’s business meetings, so that would be like your stockholder or your partner meetings.
DP:These really are significant changes to be aware of when you’re out there networking, courting prospects, things of that nature.
CD:Yes, that’s right. These are big changes that affect professional service firms.
DP:These types of firms are ones that are very networked based. So are there any other changes that a professional services firm should be aware of?
CD:Yes. Meals provided on site to employees, like working meals for working overtime are now 50%. They used to be 100% deductible. There’s no more de minimis rules for the convenience of the employer.
CD:Also expenses for employer-operated food facilities. These are now 50%. They used to be 100% deductible. And after 2025 they’re not deductible anymore.
DP:What’s the key takeaway here for our listeners?
CD:There are a few items here.
CD:First, many times there are firms that bill their clients for expenses for meals and entertainment. So it’s important that these amounts be specifically stated on the bill, with detail. If you do that, you have a reimbursable plan, and now you, as the firm, doesn’t take the 50% reduction—unfortunately then your client does.
CD:Also, keep separate general ledger accounts for meals, entertainment, employee recreation. And make sure on the invoices that you get that there is a breakdown between what is the meal portion and what is the entertainment portion.
DP:Good advice. Carolyn, thank you for your expertise and your insight on an issue that I’ve seen a lot of in the media lately.
CD:Great, thank you.
DP:And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and host of other topics and join us for our next EisnerAmper podcast when we get down to business.
Carolyn Dolci discusses tax reform within professional services firms and how tax cuts will impact bonus depreciation, regular depreciation and section 179 depreciation. Professional services firms should ask if bonus depreciation, section 179 or regular depreciation is best.