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Changes to Business Expense Deductions Under the Newest Tax Rules

Posted on in Small Business Taxes

San Jose small business tax deduction attorneyThe 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.  

Fortunately, the TCJA did not take away all business expense deductions. Businesses can still deduct 50 percent of a business meal bill provided that the meal meets certain criteria:

  • The business owner or a business employee must be present. 
  • The food and drink consumed at the meal cannot be considered lavish or extravagant. 
  • The meals must be taken with a current or prospective customer, client or consultant.
  • Food and drink offered during entertainment events can be deductible if they are paid for apart from the event. 

These rules are still new. It is anticipated that the Treasury Department and the IRS will put out proposed regulations explaining when business meal expenses are deductible and what qualifies as entertainment. In the meantime, taxpayers may refer to IRS Notice 2018-76.

Contact a San Jose, CA Business Tax Lawyer

Taxes should play a major role in any business plan. If you have not taken a close look at your business taxes, a San Jose, CA business tax attorney will be able to counsel you on how you can minimize your tax liability.

Even if you feel confident in your business’ tax strategy, changes such as the TCJA mean that your tax plan should be regularly reevaluated by tax professionals. At John D. Teter Law Offices, we can advise you on compliance with new tax laws in an effort to keep your tax bill as low as possible and avoid unnecessary penalties and interest. Contact us today at 408-866-1810.

Sources:

https://www.irs.gov/pub/irs-drop/n-18-76.pdf

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