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Tax Reform Suspends the Tax Deduction for Employee Business Expenses
Article Highlights:
- Employee Business Expenses
- Miscellaneous Itemized Deductions Subject to the 2% AGI Floor
- Accountable Reimbursement Plan
- Occupations Impacted
However, this new limitation does not apply to individuals who are self-employed. For this group of taxpayers, expenses such as business use of their personal vehicle, business-related travel, work-related education, and use of a qualified home office for business continue to be tax-deductible on their business schedules. Furthermore, tax reform actually provides them with more liberal expensing options and, for some, even a special deduction of 20% of qualified business income.
In addition, this limitation does not affect employees whose employers reimburse employee business expenses under an “accountable plan,” a business-expense reimbursement plan under which the employer can reimburse employees tax-free for business expenses. On the other hand, some employers may reimburse expenses without having an “accountable plan,” in which case the reimbursement is included in the employees’ W-2 wages; since the expenses are not deductible under the new law, the reimbursement will end up being taxable.
The loss of employee business expenses as a deduction will impact certain types of employment more than others. Examples of some big losers, assuming the increased standard deduction does not make up for the loss of the deduction, will include:
Long-Haul Truckers who have to pay for their own meal and lodging expenses while on the road.
Firefighters – Many are required to pay firehouse dues, which for some have been deductible expenses, as well as uniform expenses.
Outside Sales Employees – Many work remotely away from the employer’s business location and incur travel and home office expenses.
Entertainers, including actors, musicians, and the like who always have substantial costs for costumes, agent fees, and other employee business expenses.
Union Members, including those with sizeable union dues.
Educators, including teachers and other educators who work in elementary and secondary schools who have unreimbursed expenses for classroom supplies. Even though they are allowed a $250 above-the-line deduction, that doesn’t begin to cover most teachers’ expenses.
Tradespeople who are required to provide their own tools of the trade.
The only possible remedy for the loss of this deduction is for an employee to negotiate an “accountable plan” with the employer. To be an accountable plan, the following three conditions must be met: (1) the expenses covered under the plan must be business related; (2) employees must be required by the plan to substantiate the covered expenses; and (3) if employees receive advances, the plan must require them to return any amounts in excess of their substantiated expenses. Failing to return the excess advance amount will cause that amount to be taxable to the employee.
For questions related to the loss of this deduction or about how the change will impact a specific tax situation, please give this office a call.
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Offices in Flemington, NJ and Califon, NJ
Our Mission: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we are on a mission to redefine the tax experience for individuals and small businesses. With a focus on personalized service, strategic planning, and expert guidance, we aim to empower our clients to succeed financially with confidence and ease.
Expertise in Action: With a wealth of experience and a team of dedicated professionals, we specialize in individual and small business tax preparation. While we excel in all areas of taxation, our passion lies in serving the unique needs of small business owners in New Jersey. We understand that small business taxation requires specialized knowledge and attention to detail, which is why we go above and beyond to ensure our clients receive the guidance and support they deserve.
Tailored Solutions for Every Client: Whether you're a high-net-worth individual seeking comprehensive tax planning or a small business owner in need of accounting and bookkeeping assistance, we have the expertise to meet your needs. Our team takes the time to understand your specific situation and develop customized solutions that align with your goals and objectives.
Why Choose Us?: What sets us apart from other New Jersey tax firms is our commitment to excellence and innovation in the field of taxation. We don't just prepare tax returns; we provide strategic insights, proactive planning, and actionable advice to help our clients achieve their financial goals. With a team of two CPAs, an EA, and an ERO, we have the expertise and resources to deliver exceptional service and results.
Your Success is Our Priority: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we measure our success by the success of our clients. We are dedicated to building long-lasting relationships, providing unparalleled service, and helping our clients thrive in today's ever-changing tax landscape.
We can't wait for you to experience the Prestige Accounting Services Group (previously Prestige Wealth Accounting Group) difference.
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