April 2, 2018
As everyone knows, the Tax Cuts and Job Act (TCJA) significantly changed the tax law. Two of the changes businesses need to consider for budgeting purposes are:
Employer Deductions for Business-related Meals and Entertainment
Prior to the TCJA, taxpayers could typically deduct 50% of expenses incurred for business-related meals and entertainment. On-premise business-related meals paid for by an employer to employees were 100% deductible by the employer and tax-free to employees. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.
Under TCJA, deductions for business-related entertainment expenses paid for after December 31, 2017, are no longer allowed. In addition, business-related meal expenses incurred by employees while traveling on business or eating on the company’s premises are now 50% deductible. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be nondeductible. However, companies can still deduct expenses for office holiday parties. The following compares the rules before and after the TCJA.
Client Entertainment
2017 Rules
- Entertainment expenses: 50% deductible. Sporting, concert or other events 50% deductible at face value of ticket.
- Tickets to qualified charitable events: 100% deductible
2018 Rules (New)*
- No deduction for entertainment expenses
- No deduction for entertainment expenses
Employee Travel Meals
2017 Rules
- Qualified meal expenses: 50% deductible
2018 Rules (New)*
Meals Provided for Employer Convenience (ex. on-premise cafeteria)
2017 Rules
- Expenses: 100% deductible provided the meals are excluded from the employees’ gross income as de minimis fringe benefits. Otherwise, 50% deductible.
2018 Rules (New)*
- 50% deductible until 2025. After 2025, nondeductible.
Office Holiday Parties
2017 Rules
- Expenses: 100% deductible
2018 Rules (New)*
*Subject to interpretation from the Internal Revenue Service.
Depreciation Deductions for Vehicles
TCJA allows for higher depreciation deductions for vehicles used more than 50% of the time for business purposes. Favorable changes apply to passenger vehicles (autos and light trucks and vans) and "heavy" SUVs, pickups, and vans with gross vehicle weight ratings above 6,000 pounds. Heavy SUVs, pickups, and vans are exempt from the luxury auto depreciation limits because they're treated as transportation equipment rather than passenger vehicles. Fortunately, many popular SUVs and pickups fit into the "heavy" vehicle category.
For qualified new or used passenger vehicles that are placed in service in 2018, the maximum annual depreciation deductions under the TCJA are as follows:
- Year 1 - $10,000
- Year 2 - $16,000
- Year 3 - $9,600
- Year 4 and until the vehicle is fully depreciated - $5,760
- For years after 2018, these amounts will be increased for inflation.
Even though the amount that can be depreciated in the first year the vehicle is placed in service is slightly less than the amount allowed prior to TCJA, the new tax law generally allows for much faster depreciation overall. For example, the 2017 limits for passenger cars are $11,160 for Year 1 for a new car ($3,160 for a used car). For subsequent years for new and used cars, the limits are $5,100 for Year 2, $3,050 for Year 3, and $1,875 for Year 4 and thereafter. Slightly higher limits apply to light trucks and light vans.
Please feel free to call us at 610.828.1900 if you have questions or concerns. You can contact Mike Mazur, CPA, CFF, managing principal of our New Jersey office at
[email protected]
or myself at
[email protected]
. We are always happy to help.
