Accountants Should Change the Category Descriptions in Bookkeeping Systems After They Learn of Tax Changes. Most Don’t.

There is nothing permanent except change!  Stated by a Greek philosopher over 2500 years ago and it still stands true, especially in the tax code. Sometimes there are big changes, like the one coming in 2025/2026 with the expiration of TCJA, and sometimes small changes, but it’s a good bet that every year something for business owners that was deductible is not and something that was not deductible now is. It is an accountant’s job of course to keep track of all that, but the proactive communication between the accountants of the world and their clients is often lacking.

A good example of this is entertainment. For a very long time entertainment was deductible for business owners while prospecting with clients. buy them dinner and a show, dinner and a game, dinner and a rock concert, golf, etc. It became a habit of business owners to use those activities to have fun themselves, but to also get business done. Most accounting system reports we see in the industry still have a category for expenses called “meals and entertainment” so many business owners see that on their monthly reports and mentally think that meals and entertainment is still a tax deduction. It is not! In 2018 when then president Trump made his temporary changes to the tax code, it left meals but REMOVED ALL ENTERTAINMENT from being deductible. At that time, accountants should have tweaked their bookkeeping systems, sent out emails, worked with the business owners to take the phrase, “meals and entertainment” out of their accounting reports and replaced it with “deductible meals” and then a separate line below meals called “nondeductible entertainment” which is now considered a business owner draw and taxable to the business owner!

By changing the software and reports, then reviewing the P&L reports with them, the business owners would be reminded over and over that entertainment is not deductible and they would slowly change the habit of that as an offer and go back to just “meals” as the entertainment. Accountants should work with their business owners to change there custom chart of accounts and vendor lists, P&Ls and other reports annually to help business owners visualize changes in tax rules, but most don’t.

Work with a tax planning accountant or even a non-accountant tax planner. There are a lot of good ones, but work with people who are proactive! If in May you’re looking at your business tax bill and asking, “Why can’t we deduct all these golf games and concerts I took my clients to?” after they happened and those dollars are spent, then you have the wrong accountant.