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WHAT NOW? THE RULES HAVE CHANGED ON DEDUCTING BUSINESS EXPENSES

BY LISA MCALLISTER

You might have heard a few things about the Tax Cuts and Jobs Act of 2017 – one of the most major tax legislation overhauls in recent memory.  This Act affects individuals, businesses and tax exempt organizations and government entities. Are you wondering how it will affect your bottom line? Well, if you are an employee who pays out of pocket expenses related to your job and does not get reimbursed, you may see a big difference this year.

One of the items that the TCJA eliminated was miscellaneous itemized deductions previously subject to the 2% of adjusted gross income threshold and one of those items is unreimbursed employee business expenses. Short of no longer paying these expenses, what can a taxpayer do to help lessen the blow of this change?

We recommend talking to your employer to find out if there is an accountable plan in place, or if your employer would be willing to implement one. An accountable plan is one in which your employer’s reimbursement or allowance arrangement includes all of the following rules:

  • Your expenses must have a business connection – that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
  • You must adequately account to your employer for these expenses within a reasonable period of time.
  • You must return any excess reimbursement or allowance within a reasonable period of time.

What if your employer balks at the idea of implementing an accountable plan? There may still be a way for you to present your case so that both you and your employer can live happily ever after. You could offer to take a pay cut.  Wait, what??  It could be beneficial to both parties for you to decrease your salary in exchange for reimbursement of your expenses. Your employer saves on payroll taxes, can take the deduction for your expenses and you are made whole. Winning!

If you have any questions about this, or any other tax or accounting matter, please contact us.  We’re always happy to hear from you!

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