Responding to the Elimination of the Business Expense Deduction
Responding to the Elimination of the Business Expense Deduction
This tax reform change might mean it’s time to start an accountable reimbursement plan.

Prior to the Tax Cuts and Jobs Act of 2017, certain business expenses were deductible if, in aggregate, they exceeded 2 percent of the taxpayer's adjusted gross income (AGI), said Richard Hammar, tax attorney, CPA, and senior editor of Church Finance Today.

Some expenses subject to the 2 percent AGI floor included:

  • overnight out-of-town travel;
  • local transportation;
  • meals (subject to a 50 percent AGI floor);
  • entertainment (subject to a 50 percent AGI floor);
  • home office expenses;
  • business gifts;
  • dues to professional societies;
  • work-related education;
  • work clothes and uniforms if required and not suitable for everyday use;
  • malpractice insurance;
  • subscriptions to professional journals and trade magazines related to the taxpayer's work; and
  • equipment and supplies used in the tax- payer's work.

The Tax Cuts and Jobs Act, however, "suspends all miscellaneous itemized deductions that are subject to the 2 percent floor," Hammar said.The inability to itemize and deduct business expenses "will hit some clergy hard," Hammar said. He suggested this possible workaround: "Churches could reimburse employees' business expenses under an accountable expense reimbursement arrangement."

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Posted: August 15, 2018
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