The recently enacted Tax Cuts and Jobs Act places new limitations on an employer’s deduction for fringe benefits paid or incurred after December 31, 2017.
Specifically, entertainment expenses are fully disallowed and the existing 50% limitation on the deductibility of business meals is expanded to include meals provided through an in-house cafeteria or otherwise provided on the employer’s premises. For example, meals provided at team meetings or for the convenience of the employer (i.e., overtime meals) will now be only 50% deductible. Additionally, no deduction will be allowed for employer provided transportation fringe benefits that equate to a commuting expense of the employee, except for employee safety concerns. The transportation fringe benefits remain nontaxable to the employee.
RECOMMENDED ACTION ITEMS
- Review your current chart of accounts to assess the need for modification.
- Separate accounts should be established for tracking expenses for:
- Entertainment (non-deductible)
- Meals (50% deduction)
- Business travel (100% deduction)
- Commuting fringe benefits (non-deductible)
Proper tracking of these expenses will capture the deductible portions and will avoid misclassification and potential lost deductions. Act now to avoid the substantial time and effort that would be required to review and categorize these expenses at year end.
This information is meant to provide a general overview of the tax law. Certain exceptions may apply based on your specific set of facts. if you would like to receive additional information or discuss these new rules, please contact an individual from the BST tax department.
Copyright 2018, BST & Co. LLP