Deductibility and Accounting Related to Meals and Entertainment

By Kathi Koenig, CPA

The Tax Cuts and Jobs Act (TCJA) made several changes to deductions for meal and entertainment expenses. I went through these changes in my blog of January 2018, explaining that many of the expenses that were either 100% or 50% deductible were changed to being only 50% or not deductible at all. The biggest change was that entertainment expenses would no longer be deductible at all.

Since these expenses affect so many businesses and in the past, the expenses of meals and entertainment were lumped together in one expense account, I thought it would be a good time to remind you of the changes to the deductibility of meals and entertainment and give advice on how to record this activity during the year.

Creating new and separate general ledger accounts to categorize meals into the accounts that correlate with the different level of deductibility for tax purposes is a best practice for businesses. A few of the advantages of handling this way are below.

Below are the expense accounts I would suggest that you use to separate meals and entertainment expenses. Each account has a list of the type of activity that would be categorized to that account.

100% Deductible Meals and Entertainment-include these activities:

50% Deductible Meals and Entertainment-include these activities:

Nondeductible meals and entertainment-include these activities:

After creating these new accounts, it would be wise to revisit 2019 expenses and reallocate by each of these categories so you have it done for this tax year. Take some time to visit with your staff to be sure they understand the new accounts and what should and should not be included. You may want to include scenarios or better explanations so that it is easier for them to understand what it included.

This will help make your yearend smoother and could result in more deductions for your 2019 tax return. If you need assistance with the rules or have questions, we would be happy to discuss with you.

Kathi Koenig, CPA | Consultant and Former Shareholder