May 6, 2019
It was no big surprise the tax law changed; after all, it had probably been abused over the years. However, my partners and I didn’t anticipate it would be wiped completely off the books.
Here’s the situation:
in the past, if you had unreimbursed business expenses while working for your employer, which you paid out of pocket, you could deduct these expenses on your tax return. They were part of the Miscellaneous itemized deductions. This meant you had to itemize to benefit from them. The new tax law eliminated this entire section of itemized deductions. For example, mileage and home-office expenses were big items. Others included education, union dues, conferences, safety clothing and business use of a personal cell phone. In general, the law referred to any out-of-pocket costs that were not reimbursed. In the case of mileage, employers often pay a lower rate of reimbursement than the government allows. Therefore, in the past, the difference between the current federal rate and the amount you received could be deducted. Careers such as traveling nurses, sales representatives and truck drivers were especially affected.
Business owners may want to consider setting up an accountable reimbursement plan. This simply means an employee turns in an expense report and is reimbursed. Normally, the employee would attach receipts and/or a copy of a cell phone bill. Mileage reports include number of miles driven, and the dates of and reason for the trip. Both sides benefit. The business can expense everything they reimburse. And you, as an employee, do not have income to report because it is a reimbursement. Employees are encouraged to talk to employers about this reimbursement plan. At first, it seems a business should not expect you to cover expenses without reimbursement or compensation. If extra compensation is paid, there are payroll taxes for the employer and reportable income for the employee. Many employers are adjusting compensation plans to allow for an accountable reimbursement plan and perhaps lowering wages to help even things out. By working together, a balance that works for both sides can be reached. Even though this tax-law change was explained in the media last year, it caught some people by surprise at tax time. In many cases, it dramatically changed their personal tax liability. Changes such as this mean it is even more important to work with a tax professional. Navigating the maze of tax laws is complex and time consuming. A case in point: this year, our office’s continuing education tripled that of the previous year. We do this so you don’t have to.