I admit it. We’re in trouble.
Now that I’m saying that- you are in trouble, too. As a matter of fact, every business, every entrepreneur, every solopreneur is in trouble.
Because the IRS has every reason to disallow all previously allowed business meals. No, I’m not talking about when we travel on business. Those meals are accounted for differently and will – presumably– be deductible.
But, all those other meals- the one’s where we take out Donald for lunch to convince him to turn his firm’s business over to us, where we thank Wanda for her years of association with our firm and share a dinner with her (even if we each pay for ourselves), or where we meet and go over any client’s tax returns- those meals are no longer deductible.
I’ll be honest. Those meals constitute 6.5% of our previously, legally deductible expenses. And, that’s a lot of ‘non-profit’ for which we will now subject to taxes.
I am prepared to argue that a Board of Director’s meeting is going to be deductible. And, that will be useful, since we serve on the boards of many of our clients’ firms. (I am guessing that we will be asked to serve on even more of them soon enough.) But, we haven’t (nor has anyone else, as far as we can discern) seen the IRS response to such potential deductions.
And, while there are a slew of folks out there willing to tell you we’re wrong in the above proclamation, I am going to be firm and explain to you why we are the better advisors for your firm. Because we read the laws and the regulations- and we make our decisions based upon THOSE guidances and not our wishes.
The conference report that emanated from Congress when the Senate-based amendment to the Tax Cuts and Jobs Act was approved and then signed into law (which is why this is now known as PL117-95) removed the provision that allowed the deduction of such meals in the past.
Specifically, the document stipulated that no deduction be allowed with respect to (1) an activity that is considered to be entertainment, amusement, or recreation, (2) membership dues for clubs that have a primary purpose to be social, pleasure, recreation, or business*, or (3) a facility or any portion therefore that would be employed to effect either (1) or (2) above.
(Technically, this longish sentence repeals the (a), (d), and (n)(1) subsections of the Internal Revenue Code (IRC), Section 274.)
IRC Section 274 (d) covered substantiation of the expenses delineated above. and, since the expenses are no longer deductible, there is no reason to demand substantiation of a non-deductible item. Section 274 (n)(1) limited the deductibility of those expenses to 50%; since they are no longer deductible at all, that section is also moot.
And, here’s how the IRC Section 274(a) will look, now that these changes have taken place.
Not happy? My simple answer is welcome to real life under the current political climate. The more complicated answer is to complain to your Congressperson and Senator. (NOTE: Most Senators and Congressperson- despite the fact that they serve on national committees like Tax or Finance- refuse eMail from folks who are not constituents of their district or state. )
To me, that’s a crime, since they serve on national committees.
Oh. I guess you’re wondering if I am an idiot. Sorry to inform you that I know the expression was ’23 skidoo.’ But, PL117-95 became law on the 22nd of December.
To find out how to reach your legislative officers (if you plan to complain about this change- or for any other reason that strikes your fancy):
*Chamber of Commerce dues seem to fall into this category. We plan to stand firm on the deductibility of another 5% of our expenses- membership in technical and professional societies. (Notice they are not “business” per se.)