Page 11

I.R.B. 599, available at IRS.gov/irb/ 2018-42_IRB#NOT-2018-76. Transportation (commuting) benefits. If you provide your employees with qualified transportation benefits, such as transportation in a commuter highway vehicle, transit passes, or qualified parking, you may no longer deduct these amounts. P.L. 115-97 provides that no deduction is allowed for qualified transportation benefits (whether provided directly by you, through a bona fide reimbursement arrange- ment, or through a compensation reduction agreement) incurred or paid after 2017. Also, no deduction is allowed for any expense incur- red for providing any transportation, or any pay- ment or reimbursement to your employee, in connection with travel between your employee's residence and place of employment, except as necessary for ensuring the safety of your em- ployee or for qualified bicycle commuting reim- bursements as described in section 132(f)(5) (F). While you may no longer deduct payments for qualified transportation benefits, the fringe benefit exclusion rules still apply and the pay- ments, except for qualified bicycle commuting reimbursements, may be excluded from your employee's wages. See Pub. 15-B for more in- formation about qualified transportation bene- fits. Tax-exempt organizations may need to in- crease their unrelated business taxable income by the amount of certain disallowed fringe ben- efits. For more information, see the Instructions for Form 990-T. Also see Notice 2018-99, 2018-52 I.R.B. 1067, available at IRS.gov/irb/ 2018-52_IRB#NOT-2018-99 and Notice 2018-100, 2018-52 I.R.B. 1074, available at IRS.gov/irb/2018-52_IRB#NOT-2018-100. Employee benefit programs. Employee ben- efit programs include the following. • Accident and health plans. • Adoption assistance. • Cafeteria plans. • Dependent care assistance. • Education assistance. • Life insurance coverage. • Welfare benefit funds. You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. For example, if you provide dependent care by operating a dependent care facility for your employees, de- duct your costs in whatever categories they fall (utilities, salaries, etc.). Life insurance coverage. You can't de- duct the cost of life insurance coverage for you, an employee, or any person with a financial in- terest in your business, if you’re directly or indi- rectly the beneficiary of the policy. See Regula- tions section 1.264-1 for more information. Welfare benefit funds. A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent con- tractors, or their beneficiaries. Welfare benefits are any benefits other than deferred compensa- tion or transfers of restricted property. Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. If your contributions to the fund are more than its qualified cost, carry the ex- cess over to the next tax year. Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. • The cost you would’ve been able to deduct using the cash method of accounting if you had paid for the benefits directly. • The contributions added to a reserve ac- count that are needed to fund claims incur- red but not paid as of the end of the year. These claims can be for supplemental un- employment benefits, severance pay, or disability, medical, or life insurance bene- fits. For more information, see sections 419(c) and 419A and the related regulations. Loans or Advances You generally can deduct as wages an advance you make to an employee for services per- formed if you don't expect the employee to re- pay the advance. However, if the employee per- forms no services, treat the amount you advanced as a loan. If the employee doesn't re- pay the loan, treat it as income to the employee. Below-market interest rate loans. On certain loans you make to an employee or shareholder, you’re treated as having received interest in- come and as having paid compensation or divi- dends equal to that interest. See Below-Market Loans in chapter 4. Property If you transfer property (including your compa- ny's stock) to an employee as payment for serv- ices, you can generally deduct it as wages. The amount you can deduct is the property's fair market value (FMV) on the date of the transfer less any amount the employee paid for the property. You can claim the deduction only for the tax year in which your employee includes the prop- erty's value in income. Your employee is deemed to have included the value in income if you report it on Form W-2 in a timely manner. You treat the deductible amount as received in exchange for the property, and you must rec- ognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Your gain or loss is the difference between the FMV of the property and its adjusted basis on the date of transfer. These rules also apply to property transfer- red to an independent contractor for services, generally reported on Form 1099-MISC. Restricted property. If the property you trans- fer for services is subject to restrictions that af- fect its value, you generally can't deduct it and don't report gain or loss until it is substantially vested in the recipient. However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. “Substantially vested” means the property isn't subject to a substantial risk of forfeiture. This means that the recipient isn't likely to have to give up his or her rights in the property in the future. Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. However, your de- duction may be limited. If you make the payment under an account- able plan, deduct it in the category of the ex- pense paid. For example, if you pay an em- ployee for travel expenses incurred on your behalf, deduct this payment as a travel ex- pense. If you make the payment under a nonac- countable plan, deduct it as wages and include it in the employee's Form W-2. See Reimbursement of Travel, Meals, and Entertainment, in chapter 11, for more informa- tion about deducting reimbursements and an explanation of accountable and nonaccounta- ble plans. Sick and Vacation Pay Sick pay. You can deduct amounts you pay to your employees for sickness and injury, includ- ing lump-sum amounts, as wages. However, your deduction is limited to amounts not com- pensated by insurance or other means. Vacation pay. Vacation pay is an employee benefit. It includes amounts paid for unused va- cation leave. You can deduct vacation pay only in the tax year in which the employee actually receives it. This rule applies regardless of whether you use the cash or accrual method of accounting. 3. Rent Expense What’s New Small business taxpayers. P.L. 115-97, Tax Cuts and Jobs Act, made changes to uniform capitalization rules for small business taxpay- ers. See Uniform capitalization rules, later. Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. It also dis- cusses how to treat other kinds of payments you make that are related to your use of this property. These include payments you make for taxes on the property. Page 10 Chapter 3 Rent Expense