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Business updates on tax deductions for meals, entertainment, and commuting fringe benefits

Posted on 11-15-2018
Business updates on tax deductions for meals, entertainment, and commuting fringe benefits

By Chris Dodd, CPA, Tori Jones and Zachary Bumbaugh

For tax years after Dec. 31, 2017, there have been some significant changes that can affect your current business and personal tax situations.

One of the major changes in the tax reform businesses need to take note of, and plan for accordingly, is the change to the deductions of meals and entertainment. In the new tax reform act, businesses will continue to deduct only 50% of the cost for food and beverages that are related to operating a business. Costs like this may include bottled water, snacks, coffee, and other goods that are regularly provided to clients and employees alike.

Unfortunately, the 50% limitation has been expanded to include costs to provide food and drinks to employees through an eating facility, although de minimis requirements apply.

Another change businesses need to be aware of is that any costs which are incurred for entertainment, amusement, or recreation are now disallowed. So, taking your clients to see the Astros, the Rockets, or the Texans is no longer deductible. This also includes any membership dues that are associated with entertainment, amusement, or recreation, which is in line with the current disallowance of country club dues.

Additionally, starting after Dec. 31, 2025, deductions relating to expenses for providing meals to employees for the employer’s convenience will be disallowed. For example, meals for internal lunch meetings will no longer be deductible.

Deduction rules regarding company provided transportation benefits have also been changed. The tax reform act now disallows expenses associated with providing transportation benefits to employee for commuting between an employee’s resident and place of employment.

This means that if a business reimburses employees for costs related to qualified parking, a transit pass, or the Metro Park & Ride, the business cannot deduct those expenses going forward. Even though the deduction is now disallowed for businesses, employees will still be allowed to exclude such benefits from their income.

As always, please consult your tax preparer for assistance in analyzing how the Tax Reform and Jobs Act will affect your operations going forward.

This article was originally published in the Houston Business Journal.