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How the 2018 Tax Law will change your chart of accounts

Prior to 2018, taxpayers were able to deduct 50% of their Meals & Entertainment expenses.  As a result, most chart of accounts (that pesky list of numbered items that help organize your financial statement information) include a single expense item for both types of expenses.

Under the Tax Cuts and Job Act, expenses incurred for "entertainment, amusement, or recreation expenses even if directly related to or associated with the active conduct of the taxpayer's trade or business, are no longer deductible.  If however, "expenses for recreational, social, or similar activities (including related facilities) are primarily for the benefit of the taxpayer's employees", they are fully deductible and should be captured in a separate expense account.  

Change your chart of accounts 

  • Create one expense account for Meals (50% Deductible) and a separate account for Entertainment (Not Deductible in 2018). 
  • Be sure to capture expenses for "Employee outings" as described above, in a separate expense account as they are fully deductible.