Trump wants tax deductions restored for restaurants, entertainment: How it works

Trump first floated the proposal at the end of March

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President Trump on Friday again urged Congress to restore the full tax deduction for businesses spending money at restaurants and on entertainment, in hopes of boosting industries that have been among the hardest hit by the coronavirus pandemic.

“Congress must go back to DEDUCTIBILITY by businesses if Restaurants, Clubs & Entertaiment is expected to flourish (like never before)!” Trump wrote in a Friday morning tweet.

Trump first floated the proposal at the end of March, saying he would ask Treasury Secretary Steven Mnuchin and Labor Secretary Eugene Scalia to look into rolling back a provision of the wide-ranging 2017 tax reform to incentivize businesses to spend more money at restaurants.

“This is a great time to bring it back,” Trump said last week. “Otherwise a lot of these restaurants are going to have a hard time reopening.”

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As part of the 2017 Tax Cuts and Jobs Act, which slashed the corporate tax rate to 21 percent, Congress eliminated the corporate tax deduction for entertainment expenses. Businesses could no longer deduct up to 50 percent of expenses for things like golf outings or sports tickets under the new tax law.

But, according to the Internal Revenue Service, taxpayers were allowed to continue to deduct 50 percent of the cost of business meals with clients if “the food or beverages are not considered lavish or extravagant.”

The deductions tend to favor higher-end restaurants, the part of the industry that’s been hardest hit by the economic dislocation. Mass-market eateries and fast food and pizza chains have been more likely to hold things together with takeout and delivery business.

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Restoring the dining deduction could help at least the tonier part of the restaurant industry — but down the road and depending on the strength of the recovery and consumer spending, some experts believe.

“Do I think it’s a massive help? I don’t,” said Jonathan Maze, editor-in-chief of Restaurant Business magazine. “In theory, you could see it help as business travel picks backs up. Maybe it gets a few people into restaurants who might not have done so before.”

Congress is currently on recess as a result of the outbreak and is not slated to return until late April.

The Associated Press contributed to this report.

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