February 14, 2019
Jim Kendall has been around the business world for a long time, reporting for the Daily Herald and providing marketing services through his company, Kendall Communications, Inc. Jim has interviewed our managing partner, Greg Dowell, on several occasions over the years. The most recent interview that Jim held with Greg, which resulted in a column in the Daily Herald, was on how entertainment expenses are treated under the newest tax act, the Tax Cuts and Jobs Act, also known as the TCJA. Briefly, entertainment expenses, which had been 50% deductible for years (assuming that those expenses met certain definitions to qualify as a business expense) became nondeductible under TCJA. Meals continue to be deductible at 50%.
Greg touched on a few issues with Jim, with the discussion centering on what could (or should) be done with regard to 2018 taxes, as well as the impact of the changes as we consider 2019 and future years . With regard to 2018 accounting and taxes, Greg indicated that it would be worth the time for business owners to skim the entries in their accounting software that were booked to entertainment, and to be sure that those expenses are, in fact, purely entertainment in nature. For years, it was very common to see an account titled “Meals & Entertainment” in a business’ general ledger. While it was perfectly fine in the past, titling an account in this manner and recording entries for both meals and entertainment into such an account would be inappropriate after TCJA. CPAs don’t typically have the detail of the entries that are recorded when they are engaged to prepare a business’ tax return; in the interest of time and money, they have to assume that a business owner properly recorded the transaction, assuming that it looks reasonable. For that reason, any account that is titled M&E should be reviewed by the taxpayer in detail, and entries relating to the meals should be segregated from any expenses that are entertainment. Further, if a taxpayer loosely recorded transactions to a “Meals” account or to a “Travel” account during the year, it is worthwhile to skim each of those transactions to be sure that any expense that relates solely to entertainment is segregated.
For 2019, Greg noted that all clients should make the necessary adjustments to their general ledger and make an effort to properly segregate entertainment expenses as they are recorded. Beyond tax considerations, Greg noted that business owners should really reconsider the value of their entertainment dollars; given that the expense is no longer deductible, is it really the best use of the business owner’s resources to spend the dollars on entertainment, or would the money be better spent on a dinner with the client, on new software, equipment, etc. Certainly, different businesses (and business owners) may answer that question differently, depending on their industry and their perception of the value of the actual entertainment in producing revenue or goodwill.
As he touches on all kinds of topics that are of interests to business owners, we encourage you to read Jim’s columns in the Daily Herald Business Ledger. Please copy and paste this link to your browser in order to see the article, which appeared in the 2-17-19 Daily Herald online version, and note that the article is copyrighted by Kendall Communications, Inc., and is reprinted by Dowell Group, LLP with permission: https://www.dailyherald.com/business/20190217/about-those-tax-deductions