Tax Tips: Business owners might be surprised by lost tax breaks
NEW YORK (AP) — As small business owners compile their income tax returns, they may have an unpleasant surprise — some popular business deductions have disappeared or been reduced under the new tax law.
While the law gave small business owners new tax breaks including a 20 percent deduction in income for many sole proprietors, partners and owners of S corporations, Congress took back several deductions, such as entertainment expenses, and put ceilings on interest deductions for some businesses.
Accountants and tax attorneys suspect small business clients to especially miss the break for entertaining clients and customers.
“I think they’re going to be shocked at how much more they didn’t get as a deduction,” says Joseph Perry, a certified public accountant with Marcum in Melville, New York.
The lost deductions include subsidies for employees’ transit and parking costs and what’s known as net operating loss carrybacks, which allowed companies to get a refund on taxes paid in previous years when they suffer a loss on their operations.
Owners who take customers to sporting events or the theater or treat them to a round of golf now have to foot the entire bill for those activities. The new law has done away with the entertainment deduction for businesses. Many owners use entertainment as a key part of building and maintaining relationships with clients.
But owners can still deduct the cost of taking a client out for breakfast, lunch or dinner; half the amount spent for a business meal is deductible. The IRS also says owners can buy food for a customer at an entertainment event as long as the food is paid for separately. In a notice about meals and entertainment expenses issued in October, the agency used hot dogs at a baseball game as an example. The food is deductible; the tickets are not.
Owners can also deduct 100 percent of the cost of food at parties or picnics for employees.
Owners who want to learn more about the lost deductions can find information on the IRS website, www.irs.gov :
— The IRS issued a notice in October detailing the changes in deductions for meals and entertainment. You can find it at https://bit.ly/2t2TnlB . The agency has not yet updated its Publication 463, Travel, Entertainment, Gift, and Car Expenses, on its website for 2018, but the IRS has said taxpayers can rely on the guidance in its notice when compiling their returns.
— The IRS put together questions and answers about new limits on deducting business interest; you can find it at https://bit.ly/2Bubh5t . It has updated its Publication 535, Business Expenses, to reflect the changes for 2018.
— Publication 535 explains the elimination of the deduction for employees’ commuting costs but notes that if an employer is paying for transit or parking to ensure the safety of employees, the deduction can still be taken.
— The IRS has a brief explanation of the end to net operating loss carrybacks at https://bit.ly/2SxW7pz .