Ever wonder about the effects of the Tax Cuts and Jobs Act?

Deductions and employee benefits changes

Posted November 2, 2018

The Tax Cuts and Jobs Act (TCJA) changed the tax treatment of certain deductions and employee benefits. Other changes involved business considerations such as depreciation, expensing, and tax credits.

Deductions

The TCJA generally eliminated the deduction for any expenses related to activities considered entertainment, amusement, or recreation. Under the new law, however, taxpayers can continue to deduct 50% of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. If provided during or at an entertainment activity, the food and beverages must be purchased separately from the entertainment, or the cost of the food or beverages must be stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The law also limits deductions for business interest incurred by certain businesses. Generally, for businesses with 25 million or less in average annual gross receipts, business interest expense is limited to business interest income plus 30% of the business’s adjusted taxable income and floor-plan financing interest. There are some exceptions to the limit, and some businesses can elect out of this limit. Disallowed interest above the limit may be carried forward indefinitely, with special rules for partnerships.

The TCJA also repealed the exception for local lobbying expenses. The general disallowance rules for lobbying and political expenses now apply to payments related to local legislation as well.

Employee benefits

Under the TCJA, employers can deduct qualified bicycle commuting reimbursements as a business expense. Employers must now include 100% of these reimbursements in the employee’s wages, subject to income and employment taxes.

Employers must include moving expense reimbursements in employees’ wages, subject to income and employment taxes. Generally, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income.

Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. Tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities, and other similar items.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.


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