TCJA Affects Business Entertainment
Tax Cuts & Jobs Act Applied to Your Business Entertainment Expenses
Entertainment Deductions Post TCJA
The Tax Cut & Jobs Act tax reform affected the tax deductions for business entertainment. This took away directly related and associated business entertainment expense like football games, golf, sporting events, and other similar business building activities. Is there any good news? Yes, the TCJA tax reform didn’t totally eliminate tax code Section 274(e).
Here are a few things that survived the tax reform;
Entertainment, recreation expenses, and amusement that you treat as compensation to the business’ employees
Expenses for social, recreational, or other similar activities that are primarily benefiting the employees
Business meetings of employees, stakeholders, shareholders, agents, officers, or directors
Expenses for attending a business meeting, expo, or convention that are hosted by business organizations, chamber of commerce, or trade companies.
Year End party for customers
Team building recreational event for all employees
Entertainment’s “no deduction” tax rules avoidance
1099 Immunity allows you to take 100% of the entertainment facility expense since you are claiming it as compensation to a taxable entity for services rendered or the value of the award or prize to the winner. This allows the business to deduct the entertainment facility expense for the year and the recipient is getting the compensation value of the entertainment expense. If the value is over $600, the business will need to issue a 1099 to this recipient. If the value is below the $600 valuation, than no IRS form 1099 is required at the end of the year.
Planes, Trains, and Automobiles. Everyone travels one way or another. Horseback, boat, car, plane, and trains can all be a business expense. If the cost is directly related to business events of the items listed above, then the cost is an expense to the business and not considered entertainment. The facility or type of travel has to be used for more than 50% business. If you fly your plane 70 percent for personal vacation or hobby and then only 30% for business meetings, the plane and the expenses would not be a business expense. If it was reverenced, 70% for business and 30% as a hobby, then 70% of the expenses and the plane would be a business expense that you could deduct from your business income.
In Florida, many realtors have boats as part of their business expense. The realtor needs the boat to show houses on the water to potential clients. This is a business expense. If the owners or realtor is using the boat less than 50% for this business expense, then the cost and expenses are not deductible. If the boat is used 100% for this, then the full cost of the boat and it’s expenses would be a deduction.
Employee Fringe Benefit is another form of entertainment that can be a business deduction. The business is providing a facility for it’s employees as a general employee welfare benefit. Having facilities like a baseball diamond, bowling alley, swimming pool, or golf course would be deductible as long as the activity doesn’t discriminate in favor of certain employees, officers, stakeholders. Basically, it has to be open to all employees and not just certain ones.
Enjoy spending time with your fellow coworkers and clients, but you need to remember what is and isn’t an allowable business deduction.