TCJA Changes Expense Deductibility
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The Tax Cuts and Jobs Act (TCJA) has introduced changes in deductibles, reducing or eliminating many of them. With the end of the year approaching it is important that you review your business expenses and identify deductibility. You may also want to evaluate whether accelerating certain expenses into this year would be beneficial. The TCJA changes may also require, or make favorable, for you to change your expense or reimbursement policies.
What are deductibles?
While there is no master list of deductible business expenses, the Internal Revenue Code expressly authorizes or excluded according to the general rule of IRC Sec. 162, permitting businesses to deduct their “ordinary and necessary” expenses.
Ordinary expenses are those that are common and accepted in your industry. Necessary expenses are those that are helpful and appropriate for your business. The IRS will deny expenses that they consider lavish or extravagant, even if they are ordinary and necessary.
The TCJA changed many provisions that affect the deductibility of business expenses. Some of the most impactful include the following deductions:
Meals and entertainment
The TCJA eliminates most deductions for entertainment but has retained the 50% deduction of business meals. Meals provided in connection with non-deductible entertainment can be deducted 50% provided that they are purchased separately from the entertainment, or that the cost of meals is listed independently on invoices or receipts.
The TCJA eliminates most deductions for qualified transportation fringe benefits. Benefits include parking, vanpooling, and transit passes. Some employers may opt to discontinue these benefits, however, in some areas they may be required by local law.
The TCJA suspends employee deductions for unreimbursed job expenses through 2025. These were previously treated as miscellaneous itemized deductions. Implementing a reimbursement plan for these expenses may be in the best interest of some companies as reimbursements are deductible by the business and tax-free to employees.
While some expenses are clearly deductible, others are more complex and require referencing IRS rulings or court cases. We can help to determine which business expenses are deductible, and evaluate your policies. Contact us at 949-860-9902 or click here, and we will contact you.