What the Meal?! Tax reform changes that impact you!
As business owners, we often take liberty on our business’s spending. I’ve known a few owners (myself included) to have:
- Picked up bar tabs during meals with customers and at employee holiday parties.
- Bought meals for employees as a ‘thank you’ for their efforts.
- Writen-off entertainment spending such as ski passes, golf memberships, etc.
Unfortulately, effective for 2018 and thereafter, the tax benefits of these liberties are going to change.
Here’s a quick summary of the changes affecting the most common ‘meals and entertainment’ deductions:
|Spending Category||Before 2018||2018 + Beyond|
|All entertainment purchases||50%||0%|
|Tickets to charity events||100%||0%|
|Meals provided for employee convenience||100%||50%|
|Holiday parties (no change)||100%||100%|
|Employee travel meals (no change)||50%||50%|
Take a look at your spending. How will these changes impact you?
Before you spend money on meals or entertainment, consider these questions:
- Can you tie your purchase to future sales?
- Will it help you retain your employees?
- Does it make your life easier as the owner?
- Is it in-line with your business vision?
If so… Great! It could be a worth-while purchase. Just know meal & entertainment purchases won’t reduce your tax bill quite like they used to…
Some other questions for you:
- Do you tend to pick up bar tabs simply because they are write-offs?
- Do you buy season ski passes or golf club memberships because they reduce your tax bill?
- Do you spend money on ‘wine & dine’ marketing initiatives near year-end because you need the write-off?
If this is your case, think again. These purchases will not reduce your tax bill anymore.
On a side note, it is never a good idea to spend money simply because doing so reduces your tax bill. Every business purchase needs to be treated as if it were an investment. You expect your investment portfolio to meet a base return, right? So shouldn’t you expect an even greater return from your business spending?
Hit me up if you want to calculate the return on your busienss investment, marketing spending, etc. It is your money at stake. If your business isn’t returing at least 15%, which is the return for alternative investments, then let’s look into why and improve your business’s return.
Be intentional. Be strategic. Make sure everything you buy has a purpose and will lead to a positive return on your investment. Refrain from impulse buys. Make profit a priority. If you do all this, then you are on track to a financially healthy business!