Will the loss of the entertainment deduction affect your business?

February 2, 2018   |   Blog

a clock with the words "entertainment taxes" on it

Businesses—especially smaller firms—may scale back on treating clients to major league baseball games, golf outings and the like after Congress and President Donald Trump ended a tax break for such entertainment.

The tax overhaul that Trump signed Dec. 22 eliminated a 50 percent deduction for business-related expenses for “entertainment, amusement or recreation.” Suddenly, luxury boxes at stadiums and arenas—along with theater and concert tickets—will be more costly for firms that use them for clients.

Businesses that use the entertainment deduction extensively—including law, investment, accounting and lobbying firms—will have to gauge the effects on their bottom lines. Smaller businesses will be less able to absorb the cost.

The loss of the entertainment deduction is a kind of counterpoint to the Republican Congress’s sweeping tax cuts for businesses. The overhaul slashed the corporate rate to 21 percent from 35 percent. It also created a new 20 percent deduction for many partnerships, limited liability companies, sole proprietorships and other “pass-through” businesses, whose owners pay individual tax rates on the income they earn.

Each company will have to decide for itself whether the higher after-tax cost of these expenses makes good business sense.