CARL WATTS & ASSOCIATES

June 04, 2018

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Deductions Eliminated by
the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Acts (TCJA) is the hottest tax topic for this year at least and the numerous articles about it throughout the media stand to prove it. All of these articles comment on different chapters of a tax bill of over 400 pages, but, from a practical point of view, waiting for the IRS to implement such major tax legislation and issue guidance and regulations is what interests us and all tax professionals and financial advisors.


Recently the IRS provided information to taxpayers and employers about changes from the Tax Cuts and Jobs Act that affect:

Move related vehicle expenses,

Un-reimbursed employee expenses,

Vehicle expensing.


Changes to the Deduction for Move-related
Vehicle Expenses

The TCJA suspended the deduction for moving expenses for tax years beginning after Dec. 31, 2017, and goes through Jan. 1, 2026. Thus, during the suspension no deduction is allowed for use of an automobile as part of a move.

This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.



Changes to the Deduction for Un-reimbursed Employee Expenses

The TCJA also suspends all miscellaneous itemized deductions that are subject to the 2 percent of adjusted gross income floor. This change affects un- reimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.


Previous to 2018, deductions for expenses related to meals, entertainment, amusement or recreational activities or facilities (including membership dues) wereallowed as long as they were o rdinary, necessary and directly related to the active conduct of the taxpayer’s trade or business. If you could substantiate that these expenses were ordinary, necessary and directly related to your trade or business, you could deduct up to 50% of such meal and entertainment expenses.

The TCJA changed that by making all entertainment expenses, including facilities used for such activities, nondeductible, even if these expenses directly relate to, or are associated with, the conduct of business.

Business meals and beverages however remain 50% deductible.

Therefore, sporting events, golf outings, concerts, theater tickets, club dues, etc. are nondeductible even if a substantial and bona fide business discussion is associated with the activity. Food or beverages consumed at the events are still 50% deductible.
The self-employed and business owners apparently can go on using Schedule C to deduct all their business related expenses, as well as partners who can deduct unreimbursed expenses on page two of Schedule E. The deduction is reported and listed as “UPE”. The UPE adjustment listed separately reduces self-employment tax on Schedule SE automatically.


Standard Mileage Rates for 2018

The business standard mileage rate listed in Notice 2018-03, which was issued before the TCJA passed, cannot be used to claim an itemized deduction for un- reimbursed employee travel expenses in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026. The IRS issued revised guidance.

The business standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain:

54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.

18 cents per mile driven for medical purposes, a 1 cent increase from 2017.

14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.


The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on
the variable costs.

There is always the option of calculating the actual costs of using a vehicle rather than using the standard mileage rates.

The business standard mileage rate cannot be used to claim an itemized deduction for unreimbursed employee travel expenses.

You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section
179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.


Increased Depreciation Limits

The TCJA increases the depreciation limitations for passenger automobiles placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan.

The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017. Previously, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.

Of course, as soon as the IRS begins issuing new guidance and revised publications (not just information and notices), we will know in detail all the changes and how they affect individuals as well as businesses for the following several years.

In the meantime, we cannot stress enough how important it is to keep up with our newsletters and keep in touch with your tax and/or financial advisor.
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