Tax Law Changes: Meals and Entertainment

One of the many changes to the tax code modifies the deductibility of meals and entertainment expenditures by businesses. The following modifications apply to tax year beginning after December 31, 2017.

Below is a list of updated provisions for meal and entertainment expenditures under the new tax law:

  • Entertainment expenses are not deductible unless specific exceptions are satisfied.
  • Office holiday parties remain 100% deductible under the new tax law.
  • Meals paid for while entertaining clients remain 50% deductible.
  • Meals provided for the convenience of the employer are reduced to 50% deductible. After 2025, these meals will no longer be deductible.
  • Expenses for meals incurred by an employee while traveling remain 50% deductible under the new law.

 

Please consult your tax advisor for specific issues regarding your personal tax situation. If you have any additional questions, please contact Brian Reed at 314.576.1350.

Meals & Entertainment Expense Deduction

Tax deduction

Many businesses have a difficult time determining which meals & entertainment (M&E) expenses are 50% deductible and 100% deductible. Informing your employees to keep proper documentation in order to prove amount, date and place, the business purpose, and who attended will help with the aforementioned situation. Being able to pin point which types of M&E expenses are 50% vs. 100% deductible will benefit your business once it comes time to pay Uncle Sam. Refer to the chart below, which highlights some of the major M&E expense deductions.

Meals 100% 50%
De minimis meals ordered for staff (those provided to employees for the benefit of the company)
-Meals provided during meeting/training to increase efficiency X
-Meal for employee who worked overtime X
Meals purchase for Board of Directors Meeting X
Employee events which benefit the employees, and do not discriminate in favor of highly compensated employees (holiday parties, team building, etc.) X
Meal with a customer where was discussed X
Business travel meals X
Entertainment 100% 50%
Ticket price, taxes, transportation to/from and parking expense for sporting event/entertainment event which business was discussed X
Travel 100% 50%
Transportation to/from restaurant and sporting/entertainment event which business was discussed X
Transportation and lodging expenses associated with business travel X

 

Always keep in mind that in order to take this deduction, the meal & entertainment expense must be related to/associated with business.

If you have any general or specific questions regarding meal & entertainment expense deductions, please feel free to contact Mike Dempsey, CPA at 314-576-1350 or mdempsey@bwtpcpa.com.

Expensing vs. Capitalizing

De Minimis Safe Harbor Limit

For tax years beginning on January 1, 2016 or later, the IRS has increased the de minimis safe harbor threshold for expensing from $500 to $2,500 per invoice or item for taxpayers without applicable financial statements. This limitation is for purposes for determining whether a particular expense qualifies under safe harbor, they are not intended as a ceiling on the amount you can deduct as a business expense. Items or invoices greater than $2,500 still need to be capitalized and depreciated over their useful lives.

This is an election, not a change, in accounting method. The de minimis safe harbor election needs to be made annually with a timely filed tax return, including extensions. The de minimis safe harbor election does not include amounts paid for inventory or land.

For questions, please contact Justin Work, CPA at 314-576-1350 or jwork@bwtpcpa.com.

Benefits of Utilizing Statement of Cash Flows

GAAP(Generally Accepted Accounting Principles) Net Income is Great, But How are My Company’s Cash Flows?

Chances are your business will utilize the Income Statement and Balance Sheet when analyzing its annual, semi-annual, quarterly, and monthly results. However, the Statement of Cash Flows is an excellent tool as well. It allows financial statement users to follow a reconciliation from net income to your company’s year-end cash balance. Frequently, your company’s results are more accurately reflected in the Statement of Cash Flows, as other statements often contain financial estimates used to calculate accrued revenues and expenses.

Below is a brief synopsis of the three major sections of the Statement of Cash Flows:

Operating Activities:

The ordinary business activities of your company are reconciled in this section. Starting with net income, changes from the beginning balance to the ending balance of current assets and current liabilities are calculated. Non-cash expenses, such as depreciation and amortization, that are line items on the income statement are added back to net cash. In addition, gains and losses from the sale of fixed assets are subtracted out/added back to the net cash from operating activities.

Investing Activities:

The capital expenditures of your company related to noncurrent assets and the related inflows and outflows are detailed in this section. If you company purchases building, equipment, furniture and fixtures, marketable securities, or any other related items, those outflows are detailed here. Cash inflows from the sale of such items is broken out as well.

Financing Activities:

The cash flow activities associated with your company’s long-term debt and equity transactions are detailed here. Owner investment and distribution, net borrowings received from new long-term debt, and payments on any debt are all part of this section.

 

Please contact Tony Mueller at tmueller@bwtpcpa.com or 314-576-1350 if you have any additional comments or questions.