The Tax Cuts and Jobs Act (TCJA) of 2017 has made many significant changes to tax laws that affect both individuals and small businesses. Understanding how these changes will affect the taxes a business owner must pay and the deductions they are allowed to take can help avoid tax penalties or audits.
One area affected by the TCJA is the allowance for deductions for business expenses. This change went into effect for the 2018 tax year.
Entertainment and Meal Expense Deductions
Business owners should understand that the TCJA removed the deduction for any expenses incurred by a business involving activities generally considered entertainment, amusement, or recreation. Previously, a company was typically allowed a deduction of up to 50 percent of entertainment expenses. To qualify for this deduction, the expense had to relate directly to the active performance of a business or trade. Common examples of ways a business would claim this deduction were for sporting event tickets or club memberships. Under the new rules, these expenses are now non-deductible.
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