Due to the Tax Cuts and Jobs Act (TCJA), many common transportation expenses are no longer deductible to employers. Specifically, moving and unreimbursed travel-related business expenses were not treated as taxable income under pre-tax law changes.
Businesses need to adapt to these changes, so they can appropriately adjust their budgets. There are steps that you can take to help maximize deductions and minimize taxable amounts while still providing much-needed benefits to valuable employees.
The most successful businesses allocate resources productively and protect their assets simultaneously.
Understanding the impact of the Tax Cuts and Jobs Act
President Trump signed the Tax Cuts and Job Act on Dec. 22, 2017. The provision directly repeals previously allowed moving and commuting expenses provided by employers. Under the new law, qualified transportation benefits are no longer deductible to the employer, unless they are included in an employee’s taxable income.
Even payments made directly to a third party on behalf of an employee are now taxable and must be included in the total gross amount. Companies can no longer take a deduction for providing qualified parking benefits to employees on a pretax basis, either, making the current practice unsustainable.
Moving expenses must also be included in an employee’s taxable income at the end of the year, even if they were paid to a third party. The TCJA, enacted and in full force until the year 2025, dictates that the burdens of taxes fall on employees. This mitigates the value of working condition fringe benefits for providers and recipients alike.
Factors that affect transportation costs
The Path Act was made permanent in 2015. It was an effort by Congress to encourage environmental protection through the tax-favored status of business-related transit. The Path Act, or Protecting Americans from Tax Hikes Act, was a valuable fringe benefit that helped attract and retain the best employees.
Businesses were encouraged to provide these benefits with a substantial allowable tax deduction in the fiscal year. These transportation fringe benefits include things like the cost of transit passes, qualified parking, bicycle commuting expenses and the cost of transport in a commuter highway vehicle.
While many employers must now decide whether to provide these benefits despite the loss of certain business deductions, some may not have a choice. Local laws and ordinances may require employers to provide transportation fringe benefits due to population.
How companies can mitigate changes in transportation
The best way for companies to minimize financial risk and tax liability is to plan accordingly and carefully allocate resources. Businesses should first review the current policy and ensure compliance with state and local laws.
This is also a chance to identify unrealized opportunities to add value to current benefit packages and quantify prospective savings options. Alternatives may include adjusting qualified programs or eliminating them altogether, along with the associated costs.
Employers may also choose to assign a value to each benefit and include the value amount in an employee’s gross wages. Some may even go a bit further to cover the amount of the additional tax due, thus compensating the employees for their taxable burden.
In this scenario, the employer would still be able to take a deduction as a general compensation expense.
How current investments can help lower long-term costs
The Tax Cuts and Jobs Act is not all bad for business transportation. It also authorized 100 percent bonus depreciation for certain short-lived assets. The full and immediate write-off of specific business expenses helps drive future economic and dollar for dollar revenue growth.
This bonus depreciation is for qualified investments in certain property, machines and equipment with an expected lifespan of 20 years or less. The nature of this temporary provision allows businesses to capitalize on short-term investments that can help ease the burden of transportation expenses while allowing for a full and immediate deduction.
This provision allows businesses to take advantage of the availability of short-term capital that can be allocated toward improving current transportation fringe benefit policies. Rather than taking a loss, companies can instead seize new opportunities to invest in certain expenses that will enhance policy and productivity in the workplace while providing a substantial return.
The best way to do this is with short-term capital from Reliant Funding. A team of dedicated professionals will provide you with fast and reliable funding that allows you to seize opportunities as they arise. Forget excessive paperwork and wading through red tape as the opportunity to invest slips away, Reliant Funding provides a renewable source of funds that can be delivered quickly.
You can allocate them for short-term investments that improve transportation fringe benefit policies or implement new ones. This is an investment opportunity that will provide a measurable return to your company.
Contact Reliant Funding today for more information.