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Tax Deduction Table Set for Company Picnics

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Because of the Tax Cuts and Jobs Act (TCJA) of 2017, your small business clients can no longer claim big entertainment expense deductions. However, they still may be able to carve out a deduction under a special provision in the tax code for company gatherings such as picnics and barbecues.

Aug 2nd 2021
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While entertainment expense deductions are all but gone for small businesses, they may still write off company picnics and similar outings. In fact, this write-off is exempt from the usual 50-percent limit on entertainment expense deductions.

Background: Prior to the TCJA, you could deduct 50 percent of the cost of entertainment that was “directly related” to or “associated with” your business. This included expenses immediately preceding or following a substantial business meeting. For instance, if you had a business discussion with a client in the morning and then treated him or her to a golf outing in the afternoon, 50 percent of the qualified expenses were deductible.

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Furthermore, a business was allowed to deduct 100 percent of the cost of providing subsidized meals at a company cafeteria or comparable eating facility. For employees, the value of this fringe benefit was exempt from tax.

However, the TCJA eliminated most deductions relating to business entertainment. Plus, the 100-percent deduction for company eating facilities was cut in half to 50 percent starting in 2018 through 2025, at which point it will be completely wiped off the books. However, the fringe benefit will remain tax-free to employees.

Key exception: Despite the usual 50-percent limit on write-offs for entertainment expenses, a business was generally allowed to deduct 100 percent of the cost of a company get-together. And the TCJA didn’t touch this special tax code provision. Therefore, your clients can still throw a Labor Day barbecue for the staff and write off the full cost of the shindig.

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