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Tax deduction was entertaining while it lasted

Shadow Valley Golf Course. Photo by Chris Langrill.

Golfers at Shadow Valley golf course.  Business-related golfing trips with clients will no longer be tax-deductible  under the federal tax bill. File photo.

Business executives who entertain their clients at golf courses, sports stadiums and party venues are going to pay an extra price now that the entertainment tax deduction has been eliminated. And the new tax law could also trim back business standards like meals and drinks.

The Republican tax overhaul that President Donald Trump signed into law in December cuts tax rates and nearly doubles the standard income deduction. It also caps or eliminates some popular itemized deductions, and sets the personal exemptions to zero.

The end of the deduction for businesses could have a local and national economic impact on a wide range of industries where entertaining is part of the culture and the marketing strategy. But certain industries are likely to feel a bigger hit.

Hazen Armstrong, a CPA at Robbins & Armstrong, LLP in Eagle, said many of his clients used the deduction to entertain their guests at Boise Hawks baseball games or Idaho Steelheads hockey matches.

Hazen Armstrong

Hazen Armstrong

“We see a lot of people hosting Christmas events in their own venue or renting out a space to host an event,” Armstrong said. He also sees a lot of golf-related deductions.

“Of course the dues were never deductible, just the actual greens fees,” he noted. 

Outside of sports, the entertainment industry is likely to take the biggest hit.

Accountants, tax lawyers, and many others have warned that they’re still reading the tax legislation, and don’t know its full impact yet. Some accountants say it will continue to allow deductions for dining expenses.

But Jon Bauer, a lawyer at Hawley Troxell in Boise, said he thinks that some meal and drink expenses will no longer be deductible.

“It’s a little bit different now, and we’re still trying to make sure we understand,” Bauer said. “But in general business meals with business associates, someone I work with, an attorney from another firm, clients or customers or prospects, they are not deductible anymore. Same thing with entertainment, admission fees, tickets, food and beverage – unless they meet certain other requirements.”

He noted he’s not a tax attorney and that many of his clients are still trying to determine the impact on their practices. He added that not many clients have asked him about the issue.

But if big-ticket entertainment items are no longer deductible, he said, he expects to see some behavioral changes.

“With people spending however many thousands of dollars to have tickets at Boise State or U of I games …I wouldn’t be surprised if that impacted how many businesses are willing to undertake those types of marketing expenses,” he said.

Armstrong, who prefers to take clients out golfing, said he’s unlikely to change his choice of location from the golf course to a restaurant because of the change in deduction rules.

“I think it’s still in most peoples’ best interest to continue providing entertainment for their clients,” Armstrong said. “I golf a lot, and I don’t think I would change my habit of turning 18 or nine holes of golf into a lunch instead just because of this tax bill.”

Bauer said he, too, would continue entertaining clients as usual.

“I sort of have to do the stuff I’m doing in order to continue to be successful, so I don’t foresee it changing my behavior that much,” he said. But he added he’s still retaining his expenses, just as he always has.

“At the end of 2018, what I am doing go going to do with them, I can’t tell you,” he said.

Claude Solnik of the Long Island Business News contributed to this story.

 

About Anne Wallace Allen

Anne Wallace Allen is the editor of the Idaho Business Review.