Entertainment Expense Deductions

Understanding the Changes to Entertainment Expense Deductions

Building strong relationships is essential in business. Many business owners entertain clients and prospects to foster connections that lead to sales and profits. However, the Tax Cuts and Jobs Act (TCJA) brought significant changes to what entertainment expenses are deductible. If your business relies on client dinners, sporting events, or other networking activities, it’s crucial to understand what you can and cannot write off.

These new tax laws apply to businesses of all sizes, making it important to review your expense strategy.

Entertainment Expenses: Then vs. Now

Before 2018: Partial Deduction for Entertainment

Prior to 2018, businesses could deduct entertainment and recreation expenses, provided they were directly related to conducting business. These deductions were generally capped at 50 percent of the expense.

Now: Entertainment Expense Deduction is 0 Percent

As of 2018, entertainment expenses are no longer deductible, regardless of their connection to business activities. This includes:

• Season tickets for sporting events
• Golfing and other recreational activities
• Country club dues and expenses
• Fishing and hunting trips
• Spa visits, concert tickets, and similar entertainment

Even if you are entertaining a client or networking with a potential business partner, these costs cannot be deducted.

What Entertainment Expenses Are Still Deductible?

While most entertainment expenses are now non-deductible, there are exceptions, including:

• Entertainment expenses included as employee compensation – If the cost is added to an employee’s W-2 wages, it can still be deducted.
• Company-wide entertainment events – Expenses for events that include all employees, such as holiday parties or company retreats, remain deductible.

What About the Business Meals Deduction?

The deduction for business meals remains a gray area and continues to be debated. While certain meals may still qualify for a 50 percent deduction, the IRS has yet to provide full clarity on some aspects.

To ensure compliance, business owners should:

• Document the purpose of the meal and its business relevance.
• Keep detailed records of receipts, attendees, and business discussions.
• Consult with a tax professional to determine what qualifies under the latest IRS interpretations.

Take Action: Review Your Expense Strategy

If your business frequently incurs entertainment expenses, it’s time to reassess your budgeting and tax planning. The IRS continues to enforce these rules, and misclassifying entertainment costs could lead to lost deductions or penalties.

Need Help Navigating These Tax Changes?

Understanding what’s deductible and what’s not can be complex. If you’re unsure how these rules impact your business, schedule a consultation with our team today. We’ll help you maximize deductions while staying compliant.

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I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease.