The Party’s (Mostly) Over in 2018
Students of history and those old enough to remember may recall Presidents Carter and Ford both criticized the “three martini lunch,” the quintessential Mad Men era business lunch during which both host and client were reputed to overindulge in the name of schmoozing. It may have killed afternoon productivity, but it was a tax deductible business expense, according to the IRS at the time. A normal part of doing business.
Today it’s more likely to be power smoothies or over-the-top lattes rather than martinis. It’s called networking instead of lunch, but the new Tax Cuts and Jobs Act of 2017 has changed the playing field substantially. While meals are still 50% deductible, for both employee/host and client, the entertainment portion of T & E (Travel & Entertainment) is no longer considered a reasonable, and therefore deductible, business expense. So long to tax deductible afternoons on the greens, and other perks sales, executives and even clients have come to expect.
But does the loss of the tax deduction mean the end of vendor-hosted boxes at sporting events and other forms of big client entertaining, either en masse or one-on-one? Doubtful.
Whether it’s tax-deductible or not, entertaining is often a smart way of doing business. In a more casual atmosphere, such as at a concert or over a game of golf, clients or potential clients are more likely to relax and tell you what they really want. And because people tend to do business with people they like, it’s a way to build a relationship that insures they like and trust you as well as your company’s product or service.
After all, entertaining clients was the original social media.
Time will tell if the new Tax Cuts and Jobs Act of 2017 does the work it was designed to do, which is to cut taxes overall, and create jobs. There are new cuts that have been added that are (in theory) intended to offset the reduced deductions such as business entertainment expenses.
So stay tuned, and if you’d like a personal overview of how the new tax laws will affect you, call our office for an appointment. We’d be happy to help.