Tax Reform Changes Meal & Entertainment Deductions

By now you’ve probably heard of a little thing called tax reform. The Tax Cuts and Jobs Act is the most significant change to tax legislation in 30 plus years. Its impact if far reaching for individuals and businesses alike. For some great resources on its impacts, go here.

One of the key provisions of the act is the change in deductibility of entertainment, meals and transportation fringe benefits.

What changed?

Before tax reform took effect, businesses could (in general) deduct 50 percent of business-related entertainment and meals. Qualified transportation fringe benefits were also deductible, as were employee meals provided by an employer on its premises for convenience.

Tax reform (you guessed it) changed all that. Here are a few of the changes:

  • Entertainment, amusement or recreation expenses, membership dues for clubs and expenses for facilities related to these items are no longer deductible. Meals consumed during these events remains at 50% deductible.
  • Employee meals provided by an employer on its premises are now only 50 percent deductible through 2025. After 2025, these expenses are no longer deductible. There are no changes to the 100% deductibility for holiday parties or similar social events for all employees.
  • Qualified transportation fringe benefits and some expenses related to commuting transportation for employees are no longer deductible.

So what do I do?

Here are a few tips:

  • Look at your bookkeeping procedures for your company. How will you capture expenses differently in 2018 and beyond?
  • Make sure you’re documenting and correctly tracking expenses. This impacts ALL expenses from January 1, 2018 on.
  • Review your expense reimbursement policies. There’s a pretty good bet that some of the language in there needs to change to comply with the new tax reform act. For a list of some of the questions we’ve encountered already, check out this article.

Ultimately, your course of action will vary based on your particular circumstances as well as updates from the IRS. If you have questions, ask your business advisor or CPA. The new tax reform act can be complicated, but we can help ensure your business is on track and maintaining your books correctly.

It’s the Season of Giving

season of giving

It’s beginning to look a lot like Christmas. The lights are up on the house, the stockings are hung and the presents are wrapped underneath the tree (unless you’re a procrastinator … in which case you have exactly 2 days to make it look like Christmas).

It’s the season of giving, to family, friends and even charities. As you give, here are a few tips to consider from a tax perspective.

Contribute to Qualified Charities. If you’re planning on itemizing your charitable deduction on your tax return, make sure your donation goes to a qualified charity by December 31. Not sure what a qualified charity is? Ask them about their tax-exempt status. Or, you can go to IRS.gov and use the Exempt Organizations Select Check tool to make sure.

If you are a taxpayer 70 ½ years of age or older, you can make a donation to a charity directly from your IRA (individual retirement account, a.k.a. what you’re going to live off of when you retire). If you do this, the amount is not included on taxable income. However, that also means you can’t itemize this deduction (on your handy form known as Schedule A).

Oh, and a reminder: gifts given to individuals, whether to friends, family or strangers, are not deductible. Hope your mom enjoys her new perfume.

Keep records of all donations. You’ll need to track any donations you’re planning on deducting, regardless of the amount. How do you do this? You can use a cancelled check, bank or credit card statement or payroll deduction record. For contributions of $250 or more, you must receive a written acknowledgement from the charity which states the following:

  • The charity’s name
  • The date of the contribution
  • The amount of the contribution
  • Whether or not any goods or services were received in exchange for the donation

This documentation isn’t just for fun. If you’re going to itemize your deductions, you have to have the written acknowledgement from the charity prior to filing your tax return.

Give in good condition. To be tax-deductible, clothing and household goods you donate to charity generally must be in good used condition or better. So don’t try and donate your old gym socks. This includes furniture, furnishings, electronics, appliances and linens.

Here’s a little tip from us to you. It’s a good idea to take pictures of donated items for substantiation (otherwise known as proof). Also, certain non-cash donations of $5,000 or more will require an appraisal.

Did we mention records? In order to deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or written communication from the charity. So what do we mean by monetary donations? Well, checks, cash, electronic funds transfer or credit card. But it can also apply to payroll deduction. To do this, the taxpayer needs to retain a pay stub, a Form W-2 or other documentation furnished by the employer.

Keep it to 2015. Contributions are deductible in the year they were made. So if you charged it to a credit card before the end of 2015, it counts for 2015. Even if you’re not paying your bill until 2016.

You can’t be itemized and standard. For individuals, only taxpayers who itemize their deduction (on a little form known as Form 1040 Schedule A) can claim charitable contributions. Meaning, if you normally take standard deduction, you’re out of luck for charitable deductions. Need more clarification on this? Ask your tax professional.