Page 69 - Small Business Taxes

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section 274(e)(2)(B) and Regulations section beverages are provided during or at an enter- Employee benefit programs. Employee ben-
1.274-9(b)), special rules apply. See section tainment activity, and the food and beverages efit programs include the following.
274(e)(2) and Regulations sections 1.274-9 and are purchased separately from the entertain- • Accident and health plans.
1.274-10. ment, or the cost of the food and beverages is • Adoption assistance.
stated separately from the cost of the entertain- • Cafeteria plans.
Certain fringe benefits are discussed next. ment on one or more bills, invoices, or receipts, • Dependent care assistance.
See Pub. 15-B for more details on these and you may continue to deduct 50% of the busi- • Education assistance.
other fringe benefits. ness meal expenses. The amount charged for • Life insurance coverage.
food or beverages on a bill, invoice, or receipt • Welfare benefit funds.
Meals and lodging. Generally, you can de- must reflect the venue's usual selling cost for You can generally deduct amounts you
duct 50% of certain meal expenses and 100% those items if they were to be purchased sepa-
of certain lodging expenses provided to your rately from the entertainment or must approxi- spend on employee benefit programs on the
applicable line of your tax return. For example,
employees. If the amounts are deductible, de- mate the reasonable value of those items. If you
duct the cost in whatever category the expense purchase food and beverages together with en- if you provide dependent care by operating a
dependent care facility for your employees, de-
falls. tertainment expenses and the cost of the food duct your costs in whatever categories they fall
Deduction limit on meals. You can gen- and beverages isn't stated separately on the in- (utilities, salaries, etc.).
erally deduct only 50% of the cost of furnishing voice, the cost of the food and beverages is
also an entertainment expense and none of the
Life insurance coverage. You can't de-
meals to your employees. However, you can expenses are deductible. For more information, duct the cost of life insurance coverage for you,
deduct the full cost of certain meals; see sec- including details about additional requirements
tion 274(n)(2) and Regulations section that must be met for a business meal to be de- an employee, or any person with a financial in-
terest in your business if you’re directly or indi-
1.274-12(c) for more information. For example, ductible, see Regulations sections 1.274-11
you can deduct the full cost of the following and 1.274-12(a). rectly the beneficiary of the policy. See Regula-
tions section 1.264-1 for more information.
meals.
• Meals whose value you include in an em- Section 210 of the Taxpayer Certainty Welfare benefit funds. A welfare benefit
ployee's wages. TIP and Disaster Tax Relief Act of 2020 fund is a funded plan (or a funded arrangement
• Meals you furnish to your employees as provides for the temporary allowance having the effect of a plan) that provides welfare
part of the expense of providing recrea- of a 100% business meal deduction for food or benefits to your employees, independent con-
tional or social activities, such as holiday beverages provided by a restaurant and paid or tractors, or their beneficiaries. Welfare benefits
parties or annual picnics, when made pri- incurred after December 31, 2020, and before are any benefits other than deferred compensa-
marily for the benefit of your employees January 1, 2023. For more information, see No- tion or transfers of restricted property.
other than employees who are officers, tice 2021-25, 2021-17 I.R.B. 1118, available at Your deduction for contributions to a welfare
shareholders or other owners who own a IRS.gov/irb/2021-17_IRB#NOT-2021-25; and benefit fund is limited to the fund's qualified cost
10% or greater interest in your business, or Notice 2021-63, 2021-49 I.R.B. 835, available for the tax year. If your contributions to the fund
other highly compensated employees. at IRS.gov/irb/2021-49_IRB#NOT-2021-63. are more than its qualified cost, carry the ex-
• Meals you furnish to your employees at the cess over to the next tax year.
work site when you operate a restaurant or Transportation (commuting) benefits. If Generally, the fund's “qualified cost” is the
catering service. you provide your employees with qualified total of the following amounts, reduced by the
• Meals you’re required by federal law to fur- transportation benefits, such as transportation after-tax income of the fund.
nish to crew members of certain commer- in a commuter highway vehicle, transit passes, • The cost you would’ve been able to deduct
cial vessels (or would be required to fur- or qualified parking, you may no longer deduct using the cash method of accounting if you
nish if the vessels were operated at sea). these amounts. P.L. 115-97 provides that no had paid for the benefits directly.
This doesn't include meals you furnish on deduction is allowed for qualified transportation • The contributions added to a reserve ac-
vessels primarily providing luxury water benefits (whether provided directly by you, count that are needed to fund claims incur-
transportation. through a bona fide reimbursement arrange- red but not paid as of the end of the year.
• Meals you furnish on an oil or gas platform ment, or through a compensation reduction These claims can be for supplemental un-
or drilling rig located offshore or in Alaska. agreement) incurred or paid after 2017. Also, employment benefits, severance pay, or
This includes meals you furnish at a sup- no deduction is allowed for any expense incur- disability, medical, or life insurance bene-
port camp that is near and integral to an oil red for providing any transportation, or any pay- fits.
or gas drilling rig located in Alaska. ment or reimbursement to your employee, in For more information, see sections 419(c)
P.L. 115-97, Tax Cuts and Jobs Act, connection with travel between your employee's and 419A and the related regulations.
! changed the rules for the deduction of residence and place of employment, except as
CAUTION food or beverage expenses that are ex- necessary for ensuring the safety of your em- Loans or Advances
cludable from employee income as a de mini- ployee or for qualified bicycle commuting reim-
mis fringe benefit. For amounts incurred or paid bursements as described in section 132(f)(5) You can generally deduct as wages an advance
after 2017, the 50% limit on deductions for food (F). While you may no longer deduct payments
or beverage expenses also applies to food or for qualified transportation benefits, the fringe you make to an employee for services to be
performed if you don't expect the employee to
beverage expenses excludable from employee benefit exclusion rules still apply and the pay-
income as a de minimis fringe benefit. While ments, except for qualified bicycle commuting repay the advance. However, if the employee
performs no services, treat the amount you ad-
your business deduction may be limited, the reimbursements, may be excluded from your
rules that allow you to exclude certain de mini- employee's wages. Although the value of a vanced as a loan; if the employee doesn't repay
the loan, treat it as income to the employee.
mis meals and meals on your business prem- qualified transportation fringe benefit is relevant
ises from your employee's wages still apply. in determining the fringe benefit exclusion and Below-market interest rate loans. On cer-
See Meals in section 2 of Pub. 15-B. whether the section 274(e)(2) exception for ex- tain loans you make to an employee or share-
penses treated as compensation applies, the
Food and beverage expense incurred to- deduction that is disallowed relates to the ex- holder, you’re treated as having received inter-
est income and as having paid compensation or
gether with entertainment expenses. P.L. pense of providing a qualified transportation dividends equal to that interest. See Be-
115-97 changed the rules for the deduction of fringe, not its value. For more information, see low-Market Loans in chapter 4.
business entertainment expenses. For amounts Regulations sections 1.274-13 and 1.274-14.
incurred or paid after 2017, no business deduc- See Pub. 15-B for more information about quali-
tion is allowed for any item generally consid- fied transportation benefits.
ered to be entertainment, amusement, or recre-
ation. As discussed earlier, you can deduct
50% of the cost of business meals. If food and
Page 10 Chapter 2 Employees' Pay