KPMG Spark Blog
This article we’ll cover the changes that have occurred to the business meals and entertainment deduction as well as, how to get the most of your deductions.
Traditionally, meals and entertainment fall into one of three categories:
Prior to 2018, meals and entertainment deductions were commonly taken at 50% of the expense. This means if a company had 10K in meals and entertainment expenses, it would often deduct a flat 5K. Now that we’re full steam ahead into 2018, this method is no longer advisable.
As of 2018, many entertainment expenses are no longer deductible. Easy, now you just write off 50% of the food expense and not entertainment, right? Not so fast, things can get a bit more complicated.
Here are a few examples:
Businessman Bob takes Prospect Pam to a baseball game to discuss business. Bob buys Pam a hotdog and a drink as well as the tickets. Afterwards he deducts 50% of the cost of both the tickets and food.
Businessman Bob takes Prospect Pam to a baseball game to discuss business. Bob buys Pam a hot dog and a drink as well as the tickets. Knowing he can no longer deduct entertainment costs, Bob begins to write off the hot dogs and drinks.
Businessman Bob is all good here…..right?
According to the 2018 changes, this may no longer qualify as a deductible business meal. Had he taken Prospect Pam to a restaurant beforehand to eat and discuss business and THEN gone to the game afterwards, he likely would have been able to claim the deduction. But because he and Pam ate their meals in front of entertainment, it’s likely he can no longer take the meal deduction because it’s commingled with the entertainment.
If the above example has illustrated anything, it’s that it would be a good idea to read as much as you can about the H.R. 1 (previously known as the Tax Cuts and Jobs Act). That, or hire a professional accounting team.
Business owners may be able to take 20% in deductions by looking at individual transactions and receipts or by taking a Stat Sample (a small sampling of receipts which you then extrapolate to the overall amount.)
What does this all mean? It means you need to stay on top of all your transactions by carefully organizing your receipts and transactions or by using a reliable online bookkeeping service like Bookly, that automates this process for you.
Not only will this help you single out transactions that are 100% deductible, it will also help manage exposure with the IRS. This has never been more true with the new changes to the Business Meals and Entertainment Deductions, which states that entertainment is no longer deductible.
The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax adviser.
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.
Sign up for our newsletter
Wrongfully imprisoned for 25 years, founder Patrick Pursely uses KPMG Spark to help keep his organization operating as a registered nonprofit.
Remote work isn't new, but it seems to have now shifted from a rare perk to the norm for many businesses. This change has many benefits for small businesses. Remote work now allows business owners to find the best talent regardless of their location. However, hiring remotely is different from in-person hiring, and small business owners need to know how to approach the process.
How innovation and KPMG Spark have helped this family-owned pen company provide opportunities for adults with disabilities.
Starting a business can be a busy time for any entrepreneur and to some, worrying about bookkeeping can seem like an unnecessary task. But, as intimidating as it may be to have a bookkeeper, there are many benefits to online bookkeeping and a strong accounting platform; and several problems can arise when a business does not keep their bookkeeping up to date.
KPMG is committed to empowering women in the workplace, marketplace, and community. Join us to learn more about how to support women entrepreneurs in 2021.
It’s easy for business owners to become attached to the dream they had when they first started the company. But what happens when a product flops? Don’t worry. A failed product launch doesn’t have to mean your company is doomed to fail. Join us to learn better how to pivot your company's product line.
The Research and Development (R&D) tax credit is a tax incentive for companies that perform qualified research in the U.S. Let's take a closer look at this tax credit and see how it can help your business.
Despite the ongoing COVID-19 pandemic, tax time is finally here, and it’s important for everyone to learn more about all of the new tax opportunities that small businesses may qualify for.
Small business stimulus funds are back with $284 billion in forgivable loans. Eligible businesses can receive 2.5x their 2019 payroll up to $2 million in forgivable PPP funds. Join us to see how you can get access to these funds.