The new tax laws that went into effect this year require some significant changes to a popular area that dentists used to deduct: meals and entertainment.
Within this main category, there are several changes that can be confusing. It’s necessary to update your QuickBooks chart of accounts immediately if you haven’t done so already. The first change is to eliminate or edit Meals & Entertainment. It’s no longer valid.
Instead of Meals and Entertainment, we recommend the following new categories:
- Business Meals
This is most likely the current meals & entertainment category. If you edit the existing category, make sure any entertainment expenses are moved. See below for guidance.
The business meals deduction is for the owner only. The Tax Cuts and Jobs Act has disallowed this deduction for now; but many of us expect the IRS or Congress to reinstate this deduction. When that happens, we expect it will remain a 50 percent deduction. Until then, keep records for each expense.
- Employee Meals
You now must separate employee meals from business meals. The difference is that employee meals are brought on-site for your convenience; say, during off-hours continuing education session or a staff appreciation lunch. Business meals, on the other hand, are only used by the dentist. These are 50 percent deductible.
- Entertainment Expenses
There is no current deduction for entertainment expenses. You need a separate, entertainment-only category in QuickBooks from now on to record any non-deductible entertainment expenses and ensure they are not mixed with partially or fully deductible meals expenses.
Note that while office parties and patient or referral entertainment – like a baseball game, for example – are no longer deductible, meals for clients, prospects, or referral sources are still 50 percent deductible.
- Employee Expenses
While entertainment expenses are disallowed, certain employee expenses can be 100 percent deductible. Examples include a year-end party for employees, summer picnic, or a team-building event.
For more dental QuickBooks tips, revisit our three-post series on QuickBooks Tips to keep your practice’s accounting organized and efficient. If you have questions on how to update your chart of accounts within QuickBooks, what expenses you can deduct, or what documentation is required, contact our team of Dental CPAs today.