Entertainment Deduction is Going Away in 2018…Now What?

In 2018 the deduction for entertainment expenses is going away completely.  That means that businesses are going to have to get creative with how they meet with their clients and form those critical relationships.

In the beauty service industry, most relationships are formed with the client sitting in your chair.  However, your relationships with investors, vendors and favorite clients, may have been developed during events that you attended together.  Whether you paid for the event, or the other party paid, chances are, someone was deducting them on their taxes.  With the new bill, (H.R. 1) “Tax Cuts and Jobs Act”, you will probably be seeing less of this type of business interaction, because the “entertainment deduction” has been eliminated.

You can still attend events with your clients, you just can’t deduct the cost on your taxes.  If this is a sticking point for you, then you need to think creatively and come up with ways that you can still form these relationships, but under different circumstances.

The IRS allows a full 100% deduction for marketing and advertising.  This includes promotional events that are ordinary and necessary.  “Ordinary” means that this is typical and normal for a salon or spa and “necessary” means that the business will gain a benefit from the event.  This can be a grey area, but just ensure that this is not primarily a social event, such as a cocktail party that is taking place at a resort.

Goodwill advertising is helping a cause and at the same time publicizing your business.  Let’s say you are a cosmetologist and you are an avid supporter of breast cancer research.  You could get involved with a local “Breast Cancer Run for the Cure” event, provide sponsorship, set up a booth and promote your business.  You can have your fellow cosmetologists help with the booth and invite your clients to attend the event, you might even give each of your clients that participates a shirt with your logo.  Now, you have engaged in a relationship building activity with your clients, promoted your business and it is TAX DEDUCTIBLE!!

Need help?  Join the Excerebus CPA Firm family, and let us help you determine if your creative idea is going to be a red flag to the IRS.  You can reach us at info@excerebus.com or 407-988-5647.

Categories: Tax Information

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