The change in tax rates under the Tax Cuts and Jobs Act might have gotten all of the attention (you can see the new tax rates here), but there's a lot more to tax reform that taxpayers are still trying to sort through. One of those changes involves new limits and restrictions on employee perks and business travel.
I've been thinking about how much those changes affect businesses and employees since I'm in Vegas–yes, on a business trip. And while what happens in Vegas stays in Vegas, that’s not so true when it comes to business-related expenses. As part of the Tax Cuts and Jobs Act, there have been changes to the deductibility of business-related meals and entertainment expenses. Here’s what you need to know.
Under prior law, businesses could deduct business-related expenses, including travel and certain business meals and entertainment. And under prior law, an individual taxpayer could deduct unreimbursed job expenses, including “travel, transportation, meals, entertainment, gifts, and local lodging related to your work.”
The last part? That’s no longer true. Individual taxpayers may no longer deduct unreimbursed job expenses. So if your employer doesn’t pay for travel, transportation, meals, entertainment, gifts, and local lodging related to your work, you may not claim a deduction for those expenses. Yes, even if you're out of pocket. And yes, even if it’s 100% related to your job.
(That’s true for all unreimbursed job expenses, including the home office deduction. For more, click here.)
The impact of the elimination of unreimbursed employee expenses will be felt by taxpayers who normally itemize on a Schedule A (you can see what Schedule A might look like here). It will not impact business owners, including freelancers, who file a Schedule C, since those expenses are considered business-related. However, there are some restrictions under the new law that will affect businesses and business owners. Most notably, the deduction for entertainment, amusement or recreational activities has been eliminated, and the deductibility of some meal expenses are now limited.