Meals and entertainment is one of the top 10 expense categories, contributing up to 22% of a company’s total travel budget. Such a staggering amount of spend makes compliance with the Tax Cuts and Jobs Act (TCJA) even more pressing. The complexity of the new rules, however, also makes compliance nothing less than complicated.
For instance, you may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee – but only if they are both ordinary and necessary and pass either the Directly Related test or the Associated test (see Table 2-1 of the publication). Entertainment expenses, however, generally aren’t considered directly related if they’re in situations where there are substantial distractions that generally prevent you from actively conducting business. A meeting or discussion at a nightclub, theater or sporting event? Not deductible. A meeting with a group that includes persons who aren’t business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts? Not deductible.
However, you can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships – as long as they meet all of five detailed requirements listed in the publication. One of these requirements, for example, is that the cruise ship must be a vessel registered in the United States.
What if your company rents skyboxes and other private luxury boxes to entertain clients and prospects? If you go more than once, deductibility gets even more complicated.
If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally can’t deduct more than the price of a nonluxury box seat ticket. Let’s say you pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. The cost of regular nonluxury box seats at each event is $30 a seat. You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events).
As with anything tax related, the rules aren’t always easy to comprehend so it’s best to consult your tax advisor. But what if you could leverage your T&E expense data to ease compliance and improve the accuracy of your tax filings? You could even reduce your corporate tax bill by recovering a significant portion of expenses incurred on business meals.
Learn more during a 45-minute webinar hosted by Taxback International on Wednesday, December 12th, 9:00 a.m. EST. CPA and US Tax Advisor Iliyan Tzakov will demystify the new tax rules and show you why quality data is key to your compliance strategy. You’ll also learn how an integrated solution can automatically analyze your T&E data, identify transactions eligible for deduction, and generate an itemized transaction-based report for tax submission.