business entertainment budget

When tax cuts are announced for 2018, the loss of entertainment deductions for businesses seems harmless. What would it matter if companies can no longer treat potential clients to a night on the town for a five-star meal … and deduct it? The truth is more businesses reach out to new clients by taking them to sporting events, concerts or the theater. These types of outings are better for building strong relationships than an expensive meal. Companies large and small purchase suites, box seats or season tickets for entertaining clients and promoting their business. What does losing these deductions mean for you?

Why Did the Government Cut These Deductions?

The 2018 Tax Cuts and Job Act (TCJA) lowers the corporate tax rate from 35% to 21%. With such a large cut, Washington decides entertainment deductions are not needed. In the past, a business could deduct 50% of the cost of a ticket and the meal. Now, they can only deduct part of the price of a prospective client’s hot dog and beer.

Is Losing this Deduction a Big Deal?

It is not a big deal for companies that buy random event tickets. These companies do not rely on these types of deductions to lower taxes. Businesses using these perks as a marketing tool are going to have to change their way of doing business. Instead of attending an event like a baseball game, the company should consider sponsoring a booth at a trade show. These types of business deductions are still valid and can put salespeople in contact with the right decision-makers. However, with fewer tickets sold to businesses fewer fans may be cheering in the stands. Vendors and small companies that count on event revenue may suffer losses.

What Happens If a Business Is Locked into an Entertainment Agreement?

If an organization wants to take clients to watch the Indianapolis Colts from a corporate suite at Lucas Oil Stadium, they will often commit to multi-year deals to get the best price. A company with this kind of commitment will no longer be able to deduct this expense, which can add up to between $50,000 and $100,000. Unfortunately, backing out of a contract may cost more than continuing without the benefit of deductions. Corporations need to look for tax credits in other areas of their business.

Can’t Companies with Long-Term Leases Resell Tickets?

It depends on the contract they sign. For instance, a lease for a suite at AT&T Stadium, where the Dallas Cowboys play, does not allow suite owners to resell season tickets or individual game seats. Some venues do allow businesses to list open event tickets for sale.

How Are Small Businesses Affected?

A small business is likely to buy season tickets to sports team games, musical concerts or theater performances. The loss of entertainment deductions -key to lowering taxes for some businesses- may mean these company perks are likely to get eliminated. Small companies and freelancers often use events to solidify relationships with clients. Some marketing executives fear losing their entertainment deductions means losing a vital opportunity to connect with and nurture potential clients. They need to review their marketing plans and find other ways to meet-n-greet new clients. Since meals are still deductible, the two-hour lunch meeting is sure to make a comeback (call for reservations now).

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.