Friday, May 25, 2018
Wall Street Journal, Season Tickets? Steak Dinners? Small Firms Rethink Client Events After Losing Tax Break:
A wholesale distributor plans to replace some expense-account lunches with open houses for customers. A marketing firm has stopped reimbursing employees’ commuting expenses and is giving them raises instead. A tax-audit defense firm is giving up its season tickets to Sacramento Kings basketball games.
These are some of the ways small-business owners are responding to changes in the tax law that reduce or eliminate some popular deductions for meals, entertainment and transportation, though many of the fine points are unclear.
For instance, the changes eliminate the deduction for sports tickets, concerts and other client entertainment, and set new limits on deductions for certain employee meals. Among the uncertainties is whether companies will still be able to claim a 50% deduction for business meals with customers or business associates, or whether those expenses will be considered entertainment, which is no longer deductible. “That’s the one that has got everyone jumping up and down,” said Marianna Dyson, of counsel to Covington & Burling.
The tighter limits, which take effect this year, will generate more than $41 billion in tax revenue between 2018 and 2027, according to Joint Committee on Taxation estimates. The changes were designed in part to help offset corporate tax cuts and to simplify an area that some members of Congress felt was difficult for the Internal Revenue Service to enforce.
Forty-five percent of small-business owners said they would be affected by the new limits, according to a March survey of 865 firms for The Wall Street Journal by Vistage Worldwide Inc., a CEO peer-advisory organization. Many firms said they would cut spending or make other adjustments. Big corporations are less sensitive to the changes because the cut in the corporate tax rate to 21% lowered the deductions’ value.