Tax Reform – Eliminated Business Deductions

Tax Reform – Eliminated Business Deductions

By now, you have heard a lot about the new tax law passed at the end of last year, but there are two business deductions that were eliminated you might not be aware of.

The Tax Cuts and Jobs Act repealed the deduction for entertainment expenses. Included in these now non-deductible expenses are tickets to sporting events and theatre tickets.

Business meals remain deductible at 50%, so it is important to separate business meals from entertainment expenses on your books. You can no longer lump meals and entertainment in one account.

Another deduction eliminated by the Tax Cuts and Jobs Act that we wanted to highlight is the deduction for parking. It sounds hard to believe, but the cost of providing office parking for you and your employees is no longer deductible for employers starting in 2018. However, there is a potential workaround by using a Transportation Savings Account (TSA) plan. This plan functions like a medical flexible spending account.  The contributions into the TSA by employees are done pre-tax, thus, their taxable wages will be lowered by their contributions. The contributions are not subject to income or payroll taxes. To compensate for the reduction, the employer would increase the employee’s compensation to cover the cost of the parking. The employee then would contribute the amount needed to cover the parking into their transportation savings account which would be used to pay for their parking. The contribution is limited to $260 per month. The amount contributed into the plan by the employee can be changed at any time and the unused amounts can be rolled over into the following year.

There is additional clarification needed from IRS concerning whether the additional compensation is deductible or if it is a non-deductible transportation fringe benefit. You should take this into consideration when deciding on using a TSA.

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