Growing Your Business

Employee Business Expenses and Tax Reform

by
Sonu Shukla
on
1/18/2018
Employee Business Expenses and Tax Reform

As America comes to grips with the impact of the new tax reform laws, aspects that didn’t originally get attention are starting to come to light. One of these will directly impact employees who have previously been able to deduct their work-related business expenses as miscellaneous itemized deductions. Effective tax year 2018 and going through 2025, the ability to take these deductions has been suspended. Though this won’t impact anybody whose out-of-pocket expenses fell below the previously-existing floor of 2% of adjusted gross income (AGI), for those who spent more than that level, the change means either a loss or negotiating a whole new way of doing things.

The employees who are impacted by this shift in policy are W-2 wage earners who have to spend their own money for work-related expenses. For salespeople this can mean anything from picking up a box of cookies before visiting a client to the travel costs and entertainment costs that they incur. Other professions impacted include mechanics who write off the costs of their tools and long-haul truckers who have to buy their meals or pay for hotel rooms when they’re away from home. Any employee that has business expenses not reimbursed to them by their employer were previously able to write off these expenses as itemized deductions (if they exceeded 2% of their AGI), but going forward they can’t.

Knowing whether this specific change will actually impact you may take a bit of calculating, as in addition to losing this write-off, there is also a new standard deduction for 2018, so there’s a chance that total itemized deductions that you could previously take may not have reached the new threshold anyway. But if you do find yourself looking at a loss as a result of the elimination of the deduction, your best option is to work with your employer on changing to a different accounting process. An “accountable plan” will allow you to provide them with a documented run-down of all of your expenses, for which they can reimburse you tax free. If they pay you more than you actually spent then you’d have to reimburse them within a specific period of time, but that’s a lot better than not being reimbursed at all.

It will take some time for everybody to fully understand the ramifications of the new tax laws. If you are a business owner it is also wise to understand your options when engaging with your employees. If you need information about managing business expenses or any other tax-related question, contact a local tax professional.

Sonu Shukla, CPA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].

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Sonu Shukla

Sonu Shukla

Sonu Shukla is a CPA, accountant, and tax preparer based in Orlando, FL. Sonu Shukla can assist you with your tax preparation and planning needs. Sonu is more than just another accountant in Orlando, Florida; he is a small business owner himself. It is a position in life that grants him the perspective and insight to emphasize with his clients, bringing them the best service possible. A Certified Public Accountant and a Certified Financial Planner, Sonu possesses the skills, education and experience to demonstrate unerring business acumen and passionately planned financial strategies. Being proactive is key for Sonu, tailoring highly efficient tax plans for his small business clients, all in a one on one environment where he and the client can bounce ideas around until every detail is worked out.

SONU SHUKLA, CPA, P.A.
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