How Does the New Tax Law Affect Entertainment and Incentives?

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While costs incurred from entertaining clients used to be deductible at 50 percent, they are no longer deductible under the new law.

Here’s how the new tax law that went into effect in January will impact what companies deduct in the areas of client entertainment and employee incentives.

There’s no doubt that the new tax law will have an impact on companies’ use of business meals and entertainment for clients, many experts say. While costs incurred from entertaining clients used to be deductible at 50 percent, they are no longer deductible under the new law. That also goes for event tickets, which used to be deductible for 50 precent of the face price of the ticket, and those comfy boxes at sports stadiums for entertaining clients. Tickets to “qualified” charity events, which used to be 100 percent deductible, are no longer deductible at all.

The impact of the law also extends to employee incentives. Gift limits for employee achievement awards previously applied to anything, as long as the individual gift did not exceed $400 per award and $1,600 for all gifts given to that person throughout the year. Though the dollar cap has not changed, the new tax law limits the kinds of gifts allowable to “tangible personal property.” Lobbying by the incentive industry, led by the Incentive Federation, saved what is known as 274(j) from repeal and allowed “arrangements that confer only the right to select and receive tangible personal property from a limited array of items pre-selected or pre-approved by the employer” to fall under the umbrella of “tangible personal property.” Cash, gift cards, and gift certificates do not. Regarding travel incentives, employers can still fully deduct expenses for goods, services or facilities that are treated as W-2 wages to the employee, according to JacksonLewis’ Benefits Law Advisor blog.

Experts such as Marketwatch predict these changes will affect how business is done. “Some businesses may stop wining and dining clients at sports games and concerts, and kiss goodbye to the two-martini lunch after 18 holes on the golf course.” However, others will continue to treat their clients like gold if they see a direct line to a sale.

On a positive note, there has been no change to the 50 percent deduction for the cost of employee business meals while traveling. And the long-time corporate tradition—the holiday party—has also been spared and is still deductible at 100 percent.

 

 

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