The Tax Cuts and Jobs Act (TCJA) passed at the end of 2017 resulted in significant tax reform that will begin with the 2018 tax year. These changes will impact most small businesses in many different ways.
One impact: fringe benefits.
The Internal Revenue Service (IRS) recently outlined three specific changes to fringe benefits:
- Meals and entertainment deduction. In 2017, businesses could deduct up to half of entertainment expenses connected to business as long as there was a bona fide business discussion at the event. The TCJA eliminates this deduction. However, it does allow for the deduction of up to half of business meals if the taxpayer is present and the food or drink is not “lavish or extravagant.”
- Moving expenses. The IRS used to allow the reimbursement of an employee’s moving expense not to be subject to income or employment taxes. Under current law, employers must include these expenses in the employee’s wages — thus they are subject to tax. The IRS notes that members of the military are generally excluded from this requirement.
- Bicycle transportation deduction. In the past, employers could deduct $20 per month for bicycle commuting expenses. This deduction was not subject to income or the employment taxes of employees. The TCJA allows deduction of qualified bicycle commuting expenses as a business expense reimbursement but requires employers to include the reimbursement in the employee’s wages.
These are just three examples of changes to fringe benefits that will impact a small business’ tax obligations in 2018. It is likely other changes within the TCJA will result in additional tax issues. As such, it is wise for businesses to review their tax plan to ensure they are meeting their tax obligations.