December 4, 2018

New Tax Law Changes Filing and Deduction Requirements

Since the election in 2017, Republicans have taken the necessary steps to pass the Tax cuts and Jobs Bill leading to a 1.5 trillion-dollar tax cut. This has created a number of opportunities for business owners and individual taxpayers, but even positive changes come with growing pains.

Lots of us are wondering how the new tax cuts and laws will affect us. The answer isn’t as straightforward as some may have hoped for. As a result, more people than ever before will be seeking tax help – which is creating new opportunities for Happy Tax partners and franchise owners.

Tax Changes For Business Owners

Last year, Congress passed several tax cuts primarily directed at corporations and business owners. Possibly the most notable of these reductions is the lowering of the corporate tax rate, which has been brought down from 35 percent to just 21 percent. However, Congress did not just add to the tax code. It also eliminated some common deductions and tax breaks that most taxpayers have depended upon in the past.

The new tax law is primarily a tax cut, but it did include some surprising austerity measures. For example, the recent tax reform eliminated a long-standing deduction for business entertainment expenses. No longer will business owners be able to deduct things like tickets to shows, sporting events, galleries, or anything else that they may be doing with their clients or business associates that may be construed as entertainment.

The IRS has attempted to make it a little more straightforward for business owners to deduct the cost of meals involving business with clients, associates, or employees. In addition to the new policies regarding entertainment expenses, the Bureau recently issued guidance for the deductibility of food and meals under the new tax laws, which came into effect this year. Under the IRS guidance for deductibility of business meals, 50 percent of meal-related expenses paid by the business remains a deductible expense. However, this is with the implication that the expense is a necessary aspect of conducting business. This would imply that the expense should be somewhat modest unless extravagance is considered customary in the company’s operating industry. An example would be providing food for long business meetings, particularly which may be necessary for the comfort and wellbeing of your clients or employees.

The new tax law may have streamlined some aspects of paying business taxes but is also made some things more complicated. For example, there are two particularly interesting requirements missing from the IRS guidelines that may require a business owner to think twice about whether a particular meal is a deductible expense or non-deductible entertainment expenditure. First off, business conversation during the meal is no longer an enforced requirement. Even More intriguing is that the requirement, of the business owner to be near certain in their expectation that the meeting will either lead to acquiring a benefit to the business or income in the future, is also no longer a requirement.

These factors can be hard to establish, particularly when you’re staring in the face of an IRS auditor. Business owners should take care to document all of their expenditures, particularly receipts for deductible expenses. Some business owners may want a bookkeeper or professional accountant to help with tracking receipts. Or, business owners may want to consult with a tax professional on whether it’s necessary to keep documentation on certain facts, such as work-related topics discussed during business meals.

Many Taxpayers Confused by New Policies

The recent tax law represents the first major overhaul of the U.S. Tax Code that we’ve seen in a generation. It’s enforcing a lot of change, and as a result, taxpayers appear are in a state of confusion. They need to know important limitations under the new laws, such as whether or not company owners could continue to deduct the cost of taking clients or employees out to restaurants or whether dining is considered a form of entertainment that has been disallowed.

To further complicate things, the guidance provided by the IRS may be helpful, but the lack of regulations enforcing these policies is only creating more grey areas. As the Bureau takes its time developing new rules to enforce the changes in the tax code, individual taxpayers and business owners will be stuck in a state of confusion about exactly what tax requirements apply in which circumstances.

Let a Tax Professional Carry the Burden

The recent tax reform was sweeping, and it will affect nearly every taxpayer in the nation. It changes how we will file our taxes in the upcoming tax season, as well as the types of expenses that we can deduct from our tax liability. At this time, the new tax law reform is measuring up to its promise to make meaningful changes to the way we pay our taxes. And while this is a good thing for many of us, major changes in our legal and financial institutions will naturally create a learning curve. As a result, many of us are struggling to understand how to comply with the new Tax Code.

The tax reform continues to puzzle and concern taxpayers, especially those who in the past had chosen to file taxes themselves in the past. While DIY tax preparation may have been a good way to cut costs during the tax season in the past, just about everything about filing your return this year has changed. Everyone from individuals to business owners is affected, and many of the changes in the tax law are nuanced and hard to understand. For example, things that were once considered deductible may no longer fall under a tax-exempt or deductible category.

The IRS is still finalizing its regulations, so tax laws are still changing. When it all boils down, seeking the guidance of a tax professional or licensed CPA is crucial to getting the most out of any companies’ deductions and tax write-offs. This is bringing millions of new customers to the tax planning and preparation market, and bringing smiles to the faces of Happy Tax franchise owners around the country!

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