Forget floor seats to a Lakers game or front-row Beyoncé tickets on another company’s dime. Under the new tax law, businesses can’t deduct most entertainment expenses anymore.
Businesses will be impacted in a number of ways this year under the Tax Cuts and Jobs Act, which lowers individual and corporate tax rates, among other revisions. Starting in 2018, the costs of entertainment expenses will no longer be deductible. Under the old tax code, 50% of the entertainment expenses were deductible.
“You will see behaviors change,” said Michael Chen, chief executive officer and founder of online tax preparation software Henry.tax. Some businesses may stop wining and dining clients at sports games and concerts, and kiss goodbye the two-martini lunch after 18 holes on the golf course. Even if you close a multi-million-dollar deal on a weekend ski trip, the expense would not be 50% deductible, said Ruth Wimer, executive compensation lawyer at law firm Winston & Strawn.
Boxes at sports stadiums and arenas, if owned with the intention to entertain clients, won’t be deductible either under the new tax law. “It potentially hurts the ability of smaller companies to buy higher-end ticket packages,” said Patrick Ryan, co-founder of Eventellect, a ticketing firm for sports teams and entertainment properties.
Even in situations where the after-hours perk is within the same industry and the boss wants to take his clients for a night out — say a pop recording label going to a classical music concert — it won’t count for a write-off unless attending the event has a direct business purpose, said Marc Rayner, a Certified Public Accountant with Rayner CPA in New York.
Write-offs for business-related meals with clients haven’t changed; they’re still 50% deductible. That may mean more dinners, and fewer experiences, for clients, Chen said. But businesses still need to be careful: Going to an extremely expensive restaurant with live music could, for instance, fall under entertainment.
Companies will find ways around this, of course. Promotional events are still deductible as a marketing expense, so companies may start branding outings with more advertising to qualify for the deduction, Chen said. The caveat: That business pitch needs to last the entire duration of the event, not just a few minutes.
Of course, some businesses will continue to attend events with their clients, especially if they think they’ll snag a deal. Steven Goldstein, partner and sports and entertainment practice leader at accounting firm Grassi & Co., said his firm will continue to host these events, and he thinks other companies will do so too. “If you’re going to buy tickets to the Rangers game, you’re still going to do it,” he said. “Because that’s where you can do your best business.” By Alessandra Malto for Market Watch