Tax reform brings changes to fringe benefits that can affect an employer’s bottom line

Several programs have been affected because of the Tax Cuts and Jobs Act passed last year. This includes changes to fringe benefits, which can affect an employer's bottom line and its employees' deductions.

Here’s information about some of these changes that will affect employers:

Entertainment Expenses & Deduction for Meals

The new law generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. However, under the new law, taxpayers can continue to deduct 50 percent 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. Food and beverages that are purchased or consumed during entertainment events will not be considered entertainment if either of these apply:

• they are purchased separately from the entertainment
• the cost is stated separately from the entertainment on one or more bills, invoices or receipts

TCJA repealed most meals and entertainment deductions for years beginning after 12/31/2017. See the below table. IRS Reg. 1.274-2(b)(1) defines entertainment as “The term entertainment may include an activity … such as providing food and beverages” The word “may” is not indicative that business meals are mandatorily part of entertainment. The word “must” would be such an indication.

Qualified Transportation

The new law also disallows deductions for expenses associated with qualified transportation fringe benefits or expenses incurred providing transportation for commuting. There is an exception when the transportation expenses are necessary for employee safety.

Bicycle Commuting Reimbursements

Under the new law, employers can deduct qualified bicycle commuting reimbursements as a business expense. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income. This means that employers must now include these reimbursements in the employee’s wages.

Qualified Moving Expenses Reimbursements

Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the exclusion for qualified moving expense reimbursements.

There is one exception as members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if they meet certain requirements.

Employee Achievement Award

Special rules allow an employee to exclude 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. The new law clarifies the definition of tangible personal property.

If you would like to discuss how these affects your particular situation, and any planning moves you should consider in light of them, please give me a call.

Meals & Entertainment                                                                                             2018 What’s New 

Type of Expense	Old Rules Before 2018	New Rules After 2017 through 2025	Reference & Comments
Business Entertainment	50% Deductible	No Deduction	IRC Section 274
Sky boxes	50% Deductible with limits	No Deduction
Sporting/Theatre Tickets	50% Deductible with limits	No Deduction
Other entertainment, amusement or recreation expenses	50% Deductible with limits	No Deduction	Golf, lodges, trips, resorts, etc.
Business Meals where business is discussed during or immediately before or after the meal	50% Deductible as long as not lavish or extravagant and taxpayer or employee of taxpayer is present	**No Deduction	**We believe that until   Congress   or the IRS clears this up that these meals would be included as entertainment.
Business Meals at, before, or after an entertainment event such     as     dinner before a theatre	50% Deductible as long as not lavish, and taxpayer or employee of taxpayer is present	No Deduction	We believe the elimination   of   the deduction is clear, but the definition of an entertainment event is not.
Company Picnic or Holiday Events	100% Deductible	50% Deductible	De Minimis    IRC Sec. 132(e)
Meals as Employer Convenience (on premise rule)	100% Deductible	50% Deductible	IRC Sec.119 Employer Convenience
Working   Condition Fringe Meals	100% Deductible	50% Deductible
Travel Meals	50% Deductible	50% Deductible	These are not meals subject to the entertainment limits, they     are meals subject to travel limits
Meals reimbursed by employer under accountable plans	100% Deductible by employee, Employer subject to various tests which allow either a 50% deduction if business meals, or a 100% deduction if cost of providing service	100% Deductible by employee, Employer gets no deduction if business meals, 50% deduction if travel meals and 100% deduction if cost of providing service
Business meeting meals                   of			** Guidance is not totally   clear   here,

employees, stockholders         & directors	50% Deductible	**50% Deductible	and this is our opinion
Meals sold to the general public (like cost of putting on an event)	100% Deductible	100% Deductible

Tax reform brings changes to real estate rehabilitation tax credit

Experienced Tax Accountant –The rehabilitation tax credit offers an incentive for owners to renovate and restore old or historic buildings. Tax reform legislation passed in December 2017 changed when the credit is claimed and provides a transition rule:

• The credit is 20 percent of the taxpayer’s qualifying costs for rehabilitating a building.
• The credit doesn’t apply to the money spent on buying the structure.
• The legislation now requires taxpayers take the 20 percent credit spread out over five years beginning in the year they placed the building into service.
• The law eliminates the 10 percent rehabilitation credit for pre-1936 buildings.
• A transition rule provides relief to owners of either a certified historic structure or a pre-1936 building by allowing owners to use the prior law if the project meets these conditions:
  • The taxpayer owned or leased the building on January 1, 2018, and the taxpayer continues to own or lease the building after that date.
  • The 24- or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.

Taxpayers use Form 3468, Investment Credit, to claim the rehabilitation tax credit and a variety of other investment credits.

Amare Berhie, Senior Accountant           

CEO, ABA Tax Accounting

CFO Services http://youtu.be/EYJdQtbPZAI

http://abataxaccounting.com/salestaxproblem.php

amare@abataxaccounting.com   

(651) 300-4777

Year-End Tax-Planning Moves for Businesses & Business Owners

...For tax years beginning after 2017, taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2018, if taxable income exceeds $315,000 for a married couple filing jointly, or $157,500 for all other taxpayers, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business. The limitations are phased in for joint filers with taxable income between $315,000 and $415,000 and for all other taxpayers with taxable income between $157,500 and $207,500.

...Taxpayers may be able to achieve significant savings by deferring income or accelerating deductions so as to come under the dollar thresholds (or be subject to a smaller phaseout of the deduction) for 2018. Depending on their business model, taxpayers also may be able increase the new deduction by increasing W-2 wages before year-end. The rules are quite complex, so don't make a move in this area without consulting us.

...More "small businesses" are able to use the cash (as opposed to accrual) method of accounting in 2018 and later years than were allowed to do so in earlier years. To qualify as a "small business" a taxpayer must, among other things, satisfy a gross receipts test. Effective for tax years beginning after Dec. 31, 2017, the gross-receipts test is satisfied if, during a three-year testing period, average annual gross receipts don't exceed $25 million (the dollar amount used to be $5 million). Cash method taxpayers may find it a lot easier to shift income, for example by holding off billings till next year or by accelerating expenses, for example, paying bills early or by making certain prepayments.

...Businesses should consider making expenditures that qualify for the liberalized business property expensing option. For tax years beginning in 2018, the expensing limit is $1,000,000, and the investment ceiling limit is $2,500,000. Expensing is generally available for most depreciable property (other than buildings), and off-the-shelf computer software. For property placed in service in tax years beginning after Dec. 31, 2017, expensing also is available for qualified improvement property (generally, any interior improvement to a building's interior, but not for enlargement of a building, elevators or escalators, or the internal structural framework), for roofs, and for HVAC, fire protection, alarm, and security systems. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What's more, the expensing deduction is not prorated for the time that the asset is in service during the year. The fact that the expensing deduction may be claimed in full (if you are otherwise eligible to take it) regardless of how long the property is held during the year can be a potent tool for year-end tax planning. Thus, property acquired and placed in service in the last days of 2018, rather than at the beginning of 2019, can result in a full expensing deduction for 2018.

...Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment—bought used (with some exceptions) or new—if purchased and placed in service this year. The 100% write-off is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year write-off is available even if qualifying assets are in service for only a few days in 2018.

...Businesses may be able to take advantage of the de minimis safe harbor election (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don't have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can't exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA's report). If there's no AFS, the cost of a unit of property can't exceed $2,500. Where the UNICAP rules aren't an issue, consider purchasing such qualifying items before the end of 2018.

...A corporation (other than a "large" corporation) that anticipates a small net operating loss (NOL) for 2018 (and substantial net income in 2019) may find it worthwhile to accelerate just enough of its 2019 income (or to defer just enough of its 2018 deductions) to create a small amount of net income for 2018. This will permit the corporation to base its 2019 estimated tax installments on the relatively small amount of income shown on its 2018 return, rather than having to pay estimated taxes based on 100% of its much larger 2019 taxable income.

...To reduce 2018 taxable income, consider deferring a debt-cancellation event until 2019.

...To reduce 2018 taxable income, consider disposing of a passive activity in 2018 if doing so will allow you to deduct suspended passive activity losses.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

Very truly yours,