Business Expenses and the New Tax Law

It is important to remember the age-old tax rule: “Expenditures are not deductible unless specifically allowed by law, and all income is taxable unless specifically excluded by law.”

With that in mind, let’s discuss Travel, Meals, and Entertainment under the new law. The new law makes it very simple. If you are a Form W-2 employee and you previously deducted your business expenses on Form 2106 Employee Business Expenses, then your Travel, Meals, and Entertainment are no longer deductible. That’s right! No longer deductible.

But there is a solution, and it’s called an Accountable Plan. It is not new, but it now has greater importance. With an accountable plan, you itemize your business expenses on an expense report, include your receipts, and your employer reimburses the exact amount. The employer gets the deduction and you have no income. Many employers give their employees a “flat allowance.” For the employee, this flat allowance will be income on their Form W-2 and the related expenses will not be deductible.

I recommend you be frank with your boss about the new law’s favoritism toward businesses. You may want to ask for reimbursement under an accountable plan and for certain costs to be covered for reimbursement. Good Luck.

For those taxpayers that are self-employed and report their income and expenses on a Schedule C, corporate return, or partnership return, then we will discuss what Travel, Meals, and Entertainment you can deduct in our tax letter next week.

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