Business meals 100% tax deductible for two years
Small business tax deductions during the pandemic are unique for 2021 and 2022, says Bill Vasil, tax adviser for FP Alpha, who also provides details on deductions that now apply to those working from home.
[GM] I’m George Moriarty, chief content officer at InvestmentNews. Today I’m talking to Bill Vasil, a principal at ARM CPAs and an adviser to FP Alpha.
This is the last of a three part series on tax issues that you need to know for the year ahead. We’re closing the series with some questions about the small business tax deductions.
Bill, PPP loans and employer retention credits have dominated the stimulus talk, what other deductions should business owners be aware of during the pandemic?
Bill Vasil [BV]: Recent stimulus actually removed the 50% deduction limitation on meals, so meals are now 100% deductible. This does not apply to 2020, it’s really just for 2021 and 2022.
It applies not only to dine-in meals but also carry out, but in order to get the deduction it still has to meet the prior requirements: it has to be for a business purpose, it can’t be lavish or extravagant, and if you have an entertainment element built into it, it really has to be invoiced or paid separately, because entertainment costs still remain non-deductible.
[GM] Alright, that’s really important stuff to know. Now, how can business owners and employees take advantage of working from home?
[BV] Well, unfortunately, with the tax cuts and jobs act that was effective from 2018, the ability to take a home-office deduction for employees was eliminated.
However, if you are a self-employed individual, you can still take the home office deduction. The way you calculate that is you take a percentage of the home office divided by, or the square footage of your home office, divided by the square footage of your entire home, and you multiply that percentage by things like mortgage interest, real-estate taxes, and utilities, to arrive at the home office deduction. Or as an alternative, you can choose to take the simplified method, which is just $5 per square foot of your home office up to 300 sq ft, for a maximum deduction of about $1,500.
[GM] That’s definitely unfortunate employees can’t take that home office deduction. But what about supplies, for like monitors, web cams etc.?
[BV] The easiest way for that to happen is to have the employer just buy like a monitor, a web cam for the employee. As long as it is for business purposes it’s considered a de minimus fringe benefit and it is not taxable.
If it’s a case where the employee buys it themselves, they could also get reimbursed by the employer, that works as well. But any reimbursements should be done under what they call an ‘accountable plan’. An accountable plan really has three requirements: 1. It has to be for a business purpose, 2. The employee has to provide substantiation, like a receipt, within a reasonable time frame, and then third, if it ends up not being spent for business then it needs too be returned to the employer. I’ll give you an example: let’s say somebody, an employee bought a monitor, gets reimbursed for it, and then returns the monitor to the store, they should really return that money back to the employer.
And, you know, I can only imagine working during this pandemic with so many people working from home, how many monitors have been sold. I’m sure that’s a good business to be in.
[GM] Thanks so much Bill.
This concludes our three-part series on tax tips for 2021. I want to thank Bill Vasil, principal at ARM CPAs and an adviser at FP Alpha, for taking the time to do this. And thank you all for watching.
