New tax legislation will come out of the current mess our economy finds itself in. Many ideas for tax reform trial balloons get launched, but how many ever land?
One idea that I like, and so does President Trump, is a two-pronged attack on higher business tax…prong one is bringing back the tax deduction for “entertainment” expenses spent in the course of business. Think Nutcracker tickets for your biggest client at Christmastime, when the show immediately follows a deductible business-related meal. Though limited to 50% of the amount spent like meals explained below, this prong was removed from the fork when the 2018 tax reform package was passed in December of 2017. Prior to that, business entertainment, though fairly heavily restricted, had been around for decades, at least since I began preparing taxes 40 years ago.
Prong two is the possible removal of the 50% limitation on business meals. Business meals have also been a legal tax deduction for decades, but they have been limited for a long time. The original limitation I worked with in 1980 was a limit to only deducting 80% of what was spent on the business meals and entertainment, to allow for the fact that meals deductions are often overstated as to how much is really “business.” Later, that 80% allowance became 50%. And it was lucky it stayed deductible at all. A lot of lawmakers, at the time of the 30% haircut from 80% down to 50%, wanted meals to be completely disallowed, to a tiny 0%!
In the interest of helping the economy (post-virus) get re-started, the idea of bringing back the ancient 100% deduction for meals has been run up the flagpole. I also believe that restaurants would benefit from more tax deductions for business meals. Same for entertainment venues, when shows and sporting events return to our lives.
We will see if either of these become law, but I would vote for it were I in congress.
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