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Business deductions set to change because of the TCJA

Are you a business owner? Have you grown accustomed to expensing – and deducting – business meals, entertainment, recreation and similar costs? If so, then you should definitely read this post.

The IRS recently issued guidance regarding the types of allowable deductions for business-related entertainment and meal expenditures. The changes are the result of amendments to existing IRS regulations brought about by the passage of the Tax Cuts and Jobs Act back in 2017.

What’s deductible?

Essentially, only business meals are now eligible for deduction. The meal can be for a prospective (or current) client/customer, a business colleague or a consultant. The meal must not be “lavish or extravagant,” however. For example, racking up hundreds of dollars of food and drink at a business-related luncheon for two or three people would not be deductible under the revised regulations.

What’s not eligible for deduction?

The new guidelines say that entertainment and recreational expenses are no longer deductible. Let’s say you want to take a prospective client to a sporting event or for a round of golf. Those expenses are no longer deductible. If, however, you eat a meal together while at the big game, and you pay for the food separately, the meal itself is deductible.

Why is this important?

Understanding what sorts of business expenses are deductible and which are not will keep you from running afoul of the IRS’ regulations and might even stave off an audit of your company. To learn more about these regulations – and how they fit into your business’ overall tax scheme – consult an experienced tax professional.

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