The Tax Cuts and Jobs Act of 2017 changed many provisions of the Internal Revenue Code, some for the better and some for the worse. Some elements, of course, didn't change at all. Here's how the law, which went into effect this past Jan. 1, might affect your travel and your organization.
TRAVEL & ENTERTAINMENT
The biggest change concerns expenses paid for entertaining clients and customers. The deductibility of meal expenses while traveling has been limited for years to 50 percent, but the new law tweaks that a bit. You will still be able to deduct these expenses for your own meals while traveling away from home on business, but expenses incurred while entertaining clients, which traditionally fell under that same 50 percent rule, no longer are eligible. Henceforth, organizations that take clients out to dinner or to ballgames or concerts will just have to accept that paying for those luxury-box perks now rests fully on their shoulders.
Basic business-travel deductions, such as the 100 percent deductibility of airfare and hotel expenses, remain the same, as long as the costs are not extravagant.
The travel and entertainment rules above apply equally to incentive-award trips, turning such costs into ordinary business expenses with no tax relief. This applies as long as the organization is not passing the tax cost of the incentive trip on to the participant. However, if the organizer of the incentive passes that award value on to the participant, the trip becomes taxable as personal income. For a pure incentive program, the winner would get a 1099 form at tax time, which should indicate the fair-market value of the trip itself (without the company's cost to organize the trip included).
For incentive items where the winner chooses a tangible gift, the rules remain the same: Items that fall under $600 in value do not have to be reported.
The new law does give corporations a tax cut from 35 percent to 21 percent for 2018, which could prove to be a boon for all types of incentive programs as organizations look for ways to spread the wealth. New opportunities to reward employees at all levels should open up this year.
Luxury transportation such as chartered jets and the like are subject to new rules that, one would expect, will be offset by how C-level executives are compensated. The act removes deductions for expenses associated with providing any "qualified transportation fringe" to employees of the tax-paying entity, except when necessary for safety and security reasons.
Jonathan T. Howe, Esq., is a senior partner of the Chicago and Washington, D.C., law firm of Howe & Hutton Ltd., specializing in meetings and hospitality law. Send your comments or legal questions to [email protected]