If so, you’re not alone.
According to a survey by Reliant Funding, 53% of small businesses are confused by the Tax Cuts and Jobs Act and plan to seek expert tax advice. Yet another 22% don’t even know about the new law.
The U.S. Chamber of Commerce has identified about 40 areas in the new law that need immediate clarification so businesses can plan accordingly. Some of these impact only large, or multinational companies or individual income tax returns. But many may affect small businesses.
Let me run through some of what’s on the Chamber’s list as well as one of my own.
The Tax Cuts and Jobs Act repealed the deduction for entertainment expenses. When we think of entertainment, we may picture going to a ballgame or the theater with a customer or client and now we know we can’t write off the cost of the tickets. But what about a breakfast, lunch, or dinner? Until now we’ve deducted 50% of these costs. Many tax pros say that the cost of these business meals is no longer deductible at all. Others say Congress didn’t mean to end the deduction for these business meals. Hence the confusion.
Working condition fringe benefit
A working condition fringe benefit is defined as the cost of property or services that would be allowable as a business expense deduction to the employee if he or she paid for them. Typical examples of this are driving a company car for business and work-related education costs. But for 2018 through 2025, employees cannot deduct any unreimbursed employee business expenses. Does this mean there cannot be any working condition fringe benefit during these years?
The IRS continues to have the exclusion from an employee’s gross income for working condition fringe benefits in the 2018 IRS Publication 15-B. My guess is that the IRS is interpreting the definition in a manner favorable to employees. But this could be revised.
The new law limits tax deferral for gain on the exchange of like-kind property to realty for transactions after 2017. It no longer applies to exchanges of personal property, such as vehicle trade-ins. But it’s unclear how personal property that’s part of realty, such as carpeting, will be treated. State law may define these realty-related items of personal property as real property, but what about federal law? The IRS needs to clarify whether these items continue to qualify for tax deferral under the like-kind exchange rules.
Qualified business deduction
The area of key concern to owners of pass-through entities is the qualified business deduction. This allows eligible owners essentially to deduct 20% of their profits and reduce their taxable income. There are numerous areas of confusion with this new deduction. The AICPA has requested immediate guidance from the IRS on a number of definitions under the qualified business deduction, and has made recommendations of how uncertainties should be resolved.
There aren’t answers to these confusing matters … yet. And maybe this blog isn’t helpful to your business because of the lack of clarity. I’m hoping that the IRS will clarify some uncertainties over which they have authority. And Congress may have technical corrections or a tax reform 2.0 to address some of these matters. We have to wait and see.