Wednesday, July 29, 2009

Is There Change on the Horizon for Business Meal and Entertainment Tax Deductions?

The business meal and entertainment tax deduction may soon change from an appetizer to a main course. U.S. Representative Neil Abercrombie (HI) has reintroduced a bill to the 111th Congress that aims to increase the business meal and entertainment tax deduction from 50% to 80%. Cosponsored by three U.S. Representatives, House Bill 3333 has been floating throughout congress in some capacity for several years. Most recently, Representative Abercrombie’s 2007 version of the bill (H.R 2648) died in the 110th Congress after being referred to the House Committee on Ways and Means. The bill has also been presented to the Senate during previous sessions, always suffering the same fate.

New Recipe
While H.R. 2648 and H.B. 3333 are virtually identical, the 2009 bill may be more palatable for the House Committee on Ways and Means than in previous sessions. For one, the bill has more support from the house than in previous years with the presence of two additional cosponsors (although, the Senate variation on the bill released in 2003 had seven cosponsors). Also, the economy is in a very different place than it was last time the bill was introduced.

The National Restaurant Association (NRA) has taken a strong position advocating for H.B. 3333. According to research conducted by the NRA, an increase in the business meal tax deduction to 80% would lead to $6 billion in additional restaurant sales and create an $18 billion increase to the overall economy (based on the estimate that every $1 million in restaurant sales creates 33 jobs).

Will Congress Send it Back?

The business meal and entertainment tax deduction was not always set at 50%. In fact, prior to 1983 taxpayers could deduct 100% of their meals. Faced with a growing national debt, congress lowered the deduction to 80%. In 1993, President Clinton proposed to make additional cuts to the deduction, lowering it to 50%. At the time, the belief was that such a cut in the deduction would pay about $5.78 billion more in taxes.

In 1998, the Joint Committee on Taxation estimated that the five-year cost of raising the deduction from 50% to 100% would be $43.8 billion. And while the economy is in a considerably different condition than ten years ago, it is uncertain how drastically the five-year cost estimate might change.

If you would like to learn more about H.B. 3333, you can visit these web pages:
H.B. 3333: Business Meal and Entertainment Tax Deduction
National Restaurant Association Press Release

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