The nation has seen a lot of tax changes this year, but the latest ban on entertainment deductions might be the most disappointing for both prospective clients and business owners.

While the previous tax code of 2017 held that treating a client to a Giants game or nice meal could be deductible by 50%, as long as the entertainment was used to discuss a business deal, as of the start of 2018, such write-offs are now reduced to zero.

Exceptions to the Rule

Though not many, there are a few exceptions to the rule.

For one, meals purchased while on business trips will remain 50% deductible, though meals given to employees on the business premises will drop from a complete write-off to only half.

Other exceptions that will not be affected by the tax change include:

• Expenses for entertainment goods, facilities, and services that are sold to customers;
• Entertainment, recreation, or amusement that is given to employees as a part of their W2 compensation; and
• Expenses for social and recreational activities – including facilities – for employees that do not qualify as Highly Compensated Employees (HCE). As of 2018, an employee is classified as an HCE if they make more than $120,000 or have a 5% share or higher in the company.

The Impact the Change Will Have

For many businesses, this “small” change in tax law could have a rather large impact.

For instance, businesses that focus on entertainment – such as golf courses or club lounges – could see a dramatic drop in memberships and sales, as companies are forced to entertain their clients in another, less expensive way. Sales companies, as well, who rely heavily on entertainment to secure many of their clients may need to find alternatives to non-deductible activities.

Most notably, however, charities face a serious threat to their survival, as a popular money-maker is through hosting events. Previously 100% deductible, under the new law, these charitable events can no longer be written off unless charities begin itemizing their tickets to display how much of the price will go to help pay for the event (non-deductible), and how much will go towards the charity itself (deductible as a charitable donation).

All in all, the measure of impact varies with the company – many owners claim that the tax code won’t change how they do business. For, as Steven Goldstein, Sports and Entertainment practice leader and partner at the firm Grassi & Co., points out in this article, “If you’re going to buy tickets to the Rangers game, you’re still going to do it. Because that’s where you can do your best business.”