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Tax Deductions

New 2026 Tax Incentives for Businesses Offering Employee Child Care

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Offering competitive employee benefits can help your business recruit talented professionals and keep valued employees. Employer-provided child care is especially appealing to working parents, but the cost has often made it difficult for small businesses to offer. Recent tax law changes may now make this benefit more affordable through expanded tax incentives. Your business may want to consider opening or improving an on-site child care facility, partnering with a qualified provider, or joining a shared child care arrangement. Here’s what employers should know about the enhanced credit beginning in 2026.

Recent changes

Under Section 45F of the tax code, employers may claim a tax credit for eligible expenses paid or incurred to provide child care to employees. For 2026, the credit has increased from 25% to 40% of an employer’s qualified child care facility expenditures, plus 10% of its qualified child care resource and referral expenditures paid or incurred during the tax year. It’s limited to a total of $500,000 per tax year (up from $150,000 for 2025). Beginning in 2027, the $500,000 limit will be adjusted annually for inflation.

The credit has been further enhanced for certain small businesses. If you meet the eligibility requirements, you can claim a credit equal to 50% of qualified child care facility expenses, plus 10% of qualified resource and referral expenditures, up to a maximum of $600,000 for 2026 (annually inflation-adjusted going forward).

Eligible small businesses are generally those that had average annual gross receipts for the previous five tax years below an inflation-adjusted threshold. For 2026, the threshold is $32 million.

Also, eligible small businesses can now pool their resources to provide child care for their employees and to use third-party intermediaries to facilitate child care services. These options may make the credit more accessible to businesses that can’t justify operating their own facilities.

Qualified expenditures

Qualified child care facility expenditures are amounts paid or incurred to:

  • Acquire, construct, rehabilitate or expand property that’s 1) to be used as part of your qualified child care facility, 2) depreciable or amortizable, and 3) not part of your principal residence or an employee’s home,
  • Operate your qualified child care facility, including the costs to train and compensate its employees and provide scholarship programs, or
  • Contract with a qualified child care facility to provide eligible services to your employees.

It’s important to note that qualified child care expenses exclude amounts that exceed the fair market value of providing such care.

A qualified child care facility is one that meets all state and local regulatory requirements. In addition, the facility 1) must be used principally to provide child care (unless it’s also the personal residence of the person who operates it), 2) must be open to all employees during the tax year, and 3) can’t discriminate in favor of highly compensated employees. And, if the facility is your principal trade or business, at least 30% of enrollees must be your employees’ dependents.

Additional rules

To avoid doubling your tax benefits from the same expenditures, your tax basis in any qualified child care facility is reduced by the amount of the credit attributable to facility-related expenditures. You also can’t claim other deductions or credits based on the same expenses.

In addition, if your child care facility ceases to operate as such or undergoes a change in ownership before the tenth tax year after the tax year in which it’s placed in service, you may have to recapture (pay back) some or all of the credit. The percentage of the credit that must be recaptured decreases gradually over the 10-year period.

The Sec. 45F credit is part of the general business credit, which is composed of more than 30 separate tax credits that are subject to combined limits based on your tax liability. So the amount you can use in the current year may be limited. However, any unused credit can generally be carried back one year and carried forward for 20 years. The credit is calculated and claimed on Form 8882, “Credit for Employer-Provided Childcare Facilities and Services.”

Look before you leap

Providing child care for your employees can be a major long-term investment. Although the recent enhancements to the employer-provided child care credit help make this benefit option more feasible, it isn’t right for every employer. You should also consider workforce demographics, operational costs, available providers, and the associated risks and responsibilities. Even when outsourcing, you’ll have to exercise due diligence to select a reputable provider, monitor service quality and make changes as necessary.

If you’re interested in pursuing this family-friendly benefit, we can help you evaluate the pros and cons and model the credit’s potential value. Contact us for more information and assistance.

© 2026

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Understanding Business Vehicle Tax Deductions for 2025

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If you use a vehicle for business purposes, you may be able to claim valuable tax deductions that reduce your overall tax liability. Many business owners rely on their vehicles for client meetings, job site visits, deliveries, and day to day operations. Because of this, the IRS allows businesses to deduct certain costs associated with business vehicle use.

However, the rules surrounding vehicle deductions can be complex. Factors such as the vehicle’s weight, how often it is used for business versus personal driving, and which deduction method you choose can significantly affect your final deduction. At Botwinick & Company, our experienced tax professionals help businesses evaluate these factors to determine the most advantageous approach.

Two Primary Methods for Deducting Vehicle Expenses

When claiming business vehicle deductions, the IRS generally allows two different methods. Businesses may deduct the actual expenses associated with operating the vehicle, or they may use the standard mileage rate. Each method has its own advantages depending on the vehicle type, usage, and record keeping practices.

Actual Expense Method

Under the actual expense method, businesses track and deduct the true costs associated with operating a vehicle for business purposes. These expenses can include fuel, oil, maintenance, tires, insurance, registration fees, licensing costs, and repairs. The business portion of these expenses can then be deducted on the company’s tax return.

In addition to operating costs, businesses that use the actual expense method may also claim depreciation on the vehicle. Depreciation allows the cost of the vehicle to be written off over several years rather than deducted all at once.

Vehicle Depreciation Schedule

When using the standard depreciation system for a vehicle placed into service for business use, depreciation is typically calculated over a six year period. The allowable depreciation percentages generally follow this pattern:

  • Year 1 – 20 percent
  • Year 2 – 32 percent
  • Year 3 – 19.2 percent
  • Year 4 – 11.52 percent
  • Year 5 – 11.52 percent
  • Year 6 – 5.76 percent

If the vehicle is used for business purposes 50 percent of the time or less, the IRS requires the straight line depreciation method instead. Under that approach, the depreciation is spread evenly, generally allowing 10 percent in the first and sixth years and 20 percent during years two through five.

Luxury Vehicle Depreciation Limits

Passenger vehicles are subject to annual depreciation caps that limit how much can be deducted each year. These limits are adjusted periodically for inflation. For vehicles placed in service in 2025, the maximum deductions are generally as follows:

  • Year 1 – $20,200 when bonus depreciation is claimed or $12,200 without bonus depreciation
  • Year 2 – $19,600
  • Year 3 – $11,800
  • Each additional year until fully depreciated – $7,060

If the vehicle is used partially for personal purposes, these limits must be reduced to reflect the percentage of business use.

Heavier Vehicle Advantages

Vehicles with higher weight ratings often qualify for more favorable tax treatment. SUVs, vans, and pickup trucks with a gross vehicle weight rating exceeding 14,000 pounds may be eligible for full bonus depreciation or Section 179 expensing, allowing a large portion of the purchase price to be deducted in the first year.

Vehicles weighing more than 6,000 pounds but less than 14,000 pounds may qualify for a reduced Section 179 deduction limit. For 2025, that limit is generally $31,300. As with all business vehicle deductions, the vehicle must be used more than 50 percent for business activities to qualify for these benefits.

Standard Mileage Rate Method

The alternative to tracking actual expenses is the standard mileage rate method. Instead of recording every individual cost related to the vehicle, you simply multiply your business miles driven by the IRS approved mileage rate for that year.

For 2025, the IRS standard mileage rate for business driving is 70 cents per mile. The rate is scheduled to increase to 72.5 cents per mile for 2026. The mileage rate applies to gas powered, diesel powered, hybrid, and electric vehicles.

The standard mileage rate already includes an allowance for depreciation, so businesses cannot claim additional depreciation deductions for the same vehicle if this method is used.

Why the Mileage Rate Changes Each Year

The IRS reviews vehicle operating costs each year when setting the mileage rate. These calculations are based on nationwide data that measures expenses such as fuel prices, insurance, maintenance, and depreciation. If there is a significant increase in fuel prices or operating costs, the IRS may adjust the rate accordingly.

In some situations, the IRS has even modified the mileage rate in the middle of the year when fuel prices increased significantly.

Record Keeping Requirements

Even when using the standard mileage method, proper documentation is still required. Businesses should maintain records showing:

  • Date of each business trip
  • Purpose of the trip
  • Destination
  • Total miles driven for business

Keeping a detailed mileage log is one of the most important steps for ensuring that vehicle deductions are properly supported if questioned by the IRS.

Choosing the Best Deduction Method

Selecting the right deduction method requires careful analysis. The actual expense method may provide a larger deduction when a vehicle has high operating costs or when bonus depreciation is available. On the other hand, the mileage method may be simpler and beneficial for vehicles with lower costs or when business mileage is significant.

It is important to understand that the method chosen during the first year the vehicle is placed into service can affect future tax options. If a taxpayer begins using the actual expense method, they generally cannot switch to the mileage method for that vehicle in later years. However, if the mileage method is used initially, a taxpayer may later switch to the actual expense method with certain depreciation limitations.

Special Considerations for Leased Vehicles

Businesses that lease vehicles rather than purchasing them can still claim deductions related to business use. Lease payments may be deductible based on the percentage of business use, although additional IRS rules apply. Depending on the vehicle’s value, an inclusion amount may reduce the deduction slightly.

Because the rules differ from those that apply to purchased vehicles, it is important to review the details carefully when deciding whether leasing or purchasing is the better tax strategy.

How Botwinick & Company Helps Businesses Maximize Deductions

Tax planning for business vehicles should never be approached with a one size fits all strategy. At Botwinick & Company, we work closely with business owners to evaluate vehicle purchases, depreciation opportunities, and record keeping systems that support IRS compliance.

Our experienced accounting and tax professionals help businesses determine the most beneficial deduction strategy while ensuring that all documentation requirements are met. Proper planning can significantly reduce tax liability while avoiding costly mistakes.

Speak With a Tax Professional

If your business uses vehicles for daily operations, it is important to understand how the tax rules apply to your specific situation. Whether you are purchasing a new vehicle, leasing a company car, or reviewing your mileage tracking system, professional guidance can make a significant difference.

Botwinick & Company works with businesses across multiple industries to develop effective tax strategies and ensure accurate reporting. If you have questions about business vehicle deductions for 2025 or would like help planning for future tax years, our team is ready to assist.

Contact Botwinick & Company today to discuss your business tax planning needs.

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Maximizing Depreciation In 2025: Should You Accelerate Deductions Or Take A Strategic Approach?

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As 2025 tax filing deadlines approach, many business owners are focused on compliance. However, filing season is also a strategic opportunity. While most tax planning must be completed by December 31, certain elections made at the time of filing can significantly impact your current and future tax liability. One of the most important decisions involves whether to maximize accelerated depreciation deductions or spread them out over time.

At Botwinick & Co., we work closely with business owners to evaluate depreciation strategies in the context of cash flow, tax brackets, and long-term planning goals.

Understanding Depreciation Fundamentals

When a business acquires an asset with a useful life exceeding one year, the cost is generally deducted over time rather than all at once. The applicable recovery period depends on the type of asset. For example:

  • Three years: Certain software and small tools
  • Five to seven years: Equipment and machinery
  • Fifteen years: Qualified improvement property
  • Thirty-nine years: Commercial real estate

The Modified Accelerated Cost Recovery System (MACRS) typically allows larger deductions in the earlier years of an asset’s life compared to straight-line depreciation. In addition, special provisions may allow even faster cost recovery.

First-Year Bonus Depreciation Under Current Law

Recent tax legislation expanded first-year bonus depreciation opportunities. For qualified assets acquired after January 19, 2025, and placed in service during 2025, businesses may claim 100% first-year bonus depreciation.

Eligible assets include:

  • Depreciable personal property such as equipment and computer hardware
  • Certain transportation equipment, including qualifying passenger vehicles
  • Commercially available software
  • Qualified improvement property (QIP)

QIP generally refers to improvements made to the interior of nonresidential buildings after the building was placed in service. However, enlargements, elevators, escalators, and structural framework modifications do not qualify and must generally be depreciated over 39 years.

For qualified assets acquired on or before January 19, 2025, and placed in service during 2025, the bonus depreciation rate is 40%.

Bonus depreciation applies automatically unless you elect out. Importantly, elections out of bonus depreciation must be made by asset class, not individual asset.

Section 179 Expensing For 2025

Section 179 expensing provides another powerful acceleration tool for small businesses. For tax years beginning in 2025, the maximum Section 179 deduction increases to $2.5 million.

Qualifying property includes:

  • Equipment and tangible personal property
  • Computer hardware and software
  • Transportation equipment
  • Qualified improvement property

Additionally, certain improvements to nonresidential real estate may qualify, including:

  • Roofs
  • HVAC systems
  • Fire protection and alarm systems
  • Security systems

Section 179 also covers depreciable personal property used predominantly to furnish lodging, such as furniture and appliances in short-term rental properties.

However, Section 179 comes with limitations. The deduction phases out dollar-for-dollar when more than $4 million of qualifying property is placed in service. In addition, it cannot create or increase a business loss. These rules can become particularly complex for pass-through entity owners.

When Maximizing Depreciation Makes Sense

In many cases, accelerating depreciation provides immediate tax savings, improves cash flow, and allows businesses to reinvest in operations or expansion. For companies experiencing strong taxable income in 2025, maximizing bonus depreciation or Section 179 may deliver substantial benefits.

When A Strategic Approach May Be Better

There are situations where claiming maximum first-year deductions may not be optimal.

For example, owners of pass-through businesses may qualify for the Section 199A Qualified Business Income deduction, which can equal up to 20% of QBI. Large depreciation deductions may reduce QBI and potentially limit or eliminate this valuable deduction.

Additionally, if you anticipate being in a higher tax bracket in future years or expect tax rates to increase, deferring deductions may provide greater long-term value. Once you claim 100% bonus depreciation or Section 179, you eliminate depreciation deductions for those assets in future years.

Coordinating Depreciation With Your Overall Tax Strategy

Depreciation planning should never be done in isolation. It must be evaluated alongside projected income, entity structure, capital investment plans, and anticipated tax rate changes.

At Botwinick & Co., we help business owners:

  • Evaluate eligibility for bonus depreciation and Section 179
  • Model current versus future tax savings scenarios
  • Assess interaction with the QBI deduction
  • Strategically plan 2026 capital expenditures
  • Optimize long-term cash flow and tax efficiency

Make An Informed Decision Before Filing

The decision to maximize or moderate depreciation deductions can materially affect both your 2025 tax bill and your future tax position. A proactive review before filing ensures you are not leaving money on the table or sacrificing future benefits unnecessarily.

Contact Botwinick & Co. to review your depreciation options and build a comprehensive tax strategy tailored to your business.

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Maximizing Business Write-Offs with Tangible Property Safe Harbor Rules

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If your business paid for repairs or maintenance on tangible property in 2025—such as buildings, machinery, or vehicles—you may be able to deduct those costs in full on your 2025 tax return. The key is determining whether the expense qualifies as a repair or must be treated as an improvement and depreciated over time.

The IRS provides several tangible property safe harbor rules that can help business owners claim deductions more confidently and avoid unnecessary capitalization. Understanding how these rules apply can lead to meaningful tax savings.

Repairs vs. Improvements: Why the Distinction Matters

Generally, expenses that improve tangible property must be capitalized and recovered through depreciation. An expense is considered an improvement if it results in a betterment, restoration, or adaptation of the property.

Betterment

An expense is treated as a betterment if it materially increases the productivity, efficiency, strength, quality, or output of the property, or if it represents a significant addition. These costs usually must be capitalized.

Restoration

Costs that replace a major component or a substantial structural part of a building or other asset are considered restorations. These expenses are generally not immediately deductible and must be depreciated.

Adaptation

If a property is modified for a new or different use that is not consistent with its original purpose when placed in service, the related costs are typically capitalized.

Safe Harbors That Allow Immediate Deductions

Because the line between repairs and improvements is not always clear, the IRS offers safe harbor provisions that allow certain costs to be deducted immediately.

Routine Maintenance Safe Harbor

Recurring maintenance activities that keep property in efficient operating condition may be expensed. These are tasks your business reasonably expects to perform more than once during the asset’s class life, such as inspections, cleaning, and routine part replacements.

De Minimis Safe Harbor

Small-dollar purchases of tangible property may be deducted in the year incurred if they are also expensed in your books and records. The allowable threshold depends on your financial statements:

  • $5,000 per item if your business has an applicable financial statement, such as a CPA-audited statement
  • $2,500 per item if no applicable financial statement exists

Additional requirements apply, and certain expenses may still be limited or excluded.

Small Business Safe Harbor for Buildings

Qualified small businesses may elect to deduct annual repair, maintenance, and improvement costs for eligible buildings. This applies to buildings with an original cost of $1 million or less.

The annual deduction is limited to the lesser of $10,000 or 2 percent of the building’s unadjusted basis. To qualify, average annual gross receipts must generally be $10 million or less over the prior three tax years.

Planning Opportunities Beyond Safe Harbors

Even when costs must be capitalized, there may still be opportunities for immediate deductions. Certain improvements can qualify for accelerated write-offs through bonus depreciation or Section 179 expensing, depending on the type of property and timing.

Careful planning and proper classification of expenses can make a significant difference in your current tax liability while keeping you compliant with IRS rules.

The tax professionals at Botwinick & Co. can help you evaluate your 2025 repair and maintenance expenses and plan ahead for tax-efficient improvements in 2026. If you want to be sure you’re taking full advantage of tangible property safe harbor rules while staying compliant, contact Botwinick & Co. today to learn more or get started with proactive tax planning.

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Turn a Summer Job into Tax Savings: Hire Your Child and Reap the Rewards

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With summer fast approaching, many small business owners are thinking about hiring seasonal help. If your child is looking to earn some extra money, why not keep it in the family? Hiring your child can benefit your business—and your household finances—thanks to several tax-saving opportunities.

Here are three valuable tax benefits of putting your child on your payroll this summer:

1. Shift Business Income and Save on Taxes

One of the most significant benefits of hiring your child is the ability to transfer some of your high-taxed income into tax-free or lower-taxed income. When you pay your child a reasonable wage for legitimate work, your business can deduct that amount as a business expense.

Example:
Let’s say you’re a sole proprietor in the 37% tax bracket. You hire your 17-year-old daughter to help with office work. She earns $10,000 during the year and has no other income. Thanks to the $15,000 standard deduction for single filers in 2025, she pays no federal income tax—while you save $3,700 in taxes (37% of $10,000).

Even if your child earns more than the standard deduction, the extra income will be taxed at their lower rate (starting at 10%), rather than your higher one.

✅ Pro Tip: Keep accurate records of hours worked and tasks completed to ensure the wages are considered legitimate and reasonable by the IRS.

2. Reduce or Eliminate Payroll Taxes

If your business is not incorporated, hiring your under-18 child can help you save even more through FICA and FUTA tax exemptions:

  • FICA exemption: Wages paid to a child under 18 employed by a parent are not subject to Social Security or Medicare taxes.

  • FUTA exemption: Wages paid to a child under 21 by a parent are exempt from federal unemployment (FUTA) tax.

This applies to sole proprietorships or partnerships only between the child’s parents. If your business is a corporation or has other partners, these exemptions do not apply—but hiring your child can still be financially beneficial.

3. Set Up a Retirement Plan for Your Child

Giving your child the opportunity to save for retirement early is a great long-term financial move. Once your child has earned income, they are eligible to contribute to a retirement account such as a Traditional IRA or Roth IRA.

  • For 2025, your child can contribute the lesser of:

    • Their earned income – This includes wages or salary your child earns from working, such as helping out in your business. If they earn less than $7,000 during the year, their maximum IRA contribution is limited to that amount.

    • $7,000 – This is the annual IRA contribution limit set by the IRS for individuals under age 50 in 2025. If your child earns $7,000 or more, they can contribute the full amount to their IRA for the year.

If your business offers a SEP IRA, you can contribute up to 25% of your child’s compensation (up to $70,000 for 2025), depending on your plan’s rules.

⚠️ Heads up: Early withdrawals from a traditional IRA before age 59½ may incur a 10% penalty, unless they qualify for an exception (such as higher education costs or a first-time home purchase).

More Than Just Tax Benefits

Beyond the financial advantages, hiring your child helps them:

  • Learn about the value of work

  • Gain business skills and responsibility

  • Build a work ethic early in life

  • Start saving for the future

 

Hiring your child can be a smart tax strategy—and a great opportunity to teach them real-world skills. Just be sure to follow IRS guidelines, pay a fair wage for actual work performed, and document everything.

If you’re considering hiring your child this summer, or want help designing a tax-smart strategy, contact our team today. Tax laws change frequently, and we can help ensure you remain compliant while maximizing your family’s savings.

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2025 IRS Standard Mileage Rate Update: Maximize Your Vehicle Expense Deductions

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The IRS has announced an increase in the 2025 standard mileage rate for business use of vehicles. This adjustment reflects slight changes in nationwide gas prices and other vehicle operating costs, providing a new opportunity for businesses and individuals to optimize tax deductions.

What Is the 2025 Standard Mileage Rate?

For 2025, the IRS has set the standard mileage rate for business use at 70 cents per mile, a 3-cent increase from the 2024 rate of 67 cents. This rate applies to gasoline and diesel-powered vehicles, as well as electric and hybrid-electric models.

The increase aligns with the slight rise in gas prices. According to AAA Fuel Prices, the national average price of a gallon of regular gas on January 17, 2025, was $3.11, up from $3.08 a year earlier. However, the mileage rate calculation takes into account more than just fuel costs.

How Is the Standard Mileage Rate Calculated?

The IRS adjusts the business mileage rate annually based on a comprehensive study of both fixed and variable vehicle operating costs. These costs include:

  • Fuel prices
  • Maintenance
  • Repairs
  • Insurance
  • Depreciation

In some cases, if there’s a significant fluctuation in gas prices during the year, the IRS may revise the rate midyear to reflect current conditions.

Choosing Between the Standard Mileage Rate and Actual Expenses

When deducting vehicle expenses for business, you have two primary options:

  1. Standard Mileage Rate
    • A straightforward approach, eliminating the need to track every individual expense.
    • Requires you to log business mileage, including dates, destinations, and trip purposes.
  2. Actual Expense Method
    • Allows you to deduct all actual vehicle expenses, such as fuel, maintenance, repairs, insurance, and registration fees.
    • Enables depreciation allowances for the vehicle, though certain limits may apply.

For many businesses, the standard mileage rate is a convenient option, especially when reimbursing employees for using their personal vehicles for business purposes.

Benefits of Using the Standard Mileage Rate

  • Simplified Recordkeeping: No need to track every expense—just mileage logs.
  • Employee Reimbursements: A tax-efficient way to reimburse employees, helping retain those who drive extensively for business purposes.
  • Tax Savings: Employee reimbursements using this rate are not considered taxable income.

When the Standard Mileage Rate Cannot Be Used

The cents-per-mile method is not always available. Restrictions may apply if:

  • You’ve previously claimed actual expenses for the same vehicle.
  • The vehicle is new to your business and you plan to take advantage of first-year depreciation tax breaks.
  • The vehicle does not meet IRS eligibility requirements for the standard mileage rate.

Preparing for 2025 and Beyond

Understanding when and how to use the standard mileage rate versus actual expenses is crucial for maximizing your deductions. With proper planning, you can reduce your tax liability and simplify expense tracking.

If you have questions about using the 2025 standard mileage rate, tracking vehicle expenses, or preparing your 2024 tax return, our team is here to help. Reach out today for personalized assistance in navigating these deductions.

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Maximize Your Small Business Tax Savings with Local Transportation Deductions

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Understanding how to deduct local transportation expenses can help reduce your small business’s tax liability significantly. Both you and your employees likely incur transportation costs annually, and knowing which expenses are deductible can make a substantial difference come tax time.

What Is Local Transportation?

Local transportation refers to travel within your tax home when the trip doesn’t require sleep or rest. Your “tax home” is the city or general area where your primary place of business is located. If your travel takes you far enough to necessitate rest or sleep, different rules for travel deductions may apply.

Key Rules for Work Locations

The primary rule is that commuting costs are not deductible. This includes expenses for travel between your home and your regular workplace, even if you’re performing business-related tasks during the commute (e.g., making calls or sending emails).

An exception applies if you’re commuting to a temporary work location outside your usual metropolitan area. For tax purposes, a location is considered temporary if your work there is expected to last (and actually does last) for no more than a year.

Deductible Business Travel

Once you’ve reached your regular work location, local travel related to your business becomes deductible. For example:

  • Travel from your office to meet a client.
  • Trips to pick up supplies or visit a job site.
  • Travel between two business locations you own or operate.

The Importance of Recordkeeping

Maintaining accurate records is essential for substantiating your deductions. Here’s what you need to track:

  • Public transportation: Save receipts or log expenses with details about the date, destination, and business purpose.
  • Personal vehicle use: Note the mileage driven for business purposes, along with tolls and parking fees. Receipts for expenses like gas, repairs, insurance, and maintenance are also necessary if you opt to deduct actual expenses instead of using the standard mileage rate.

Your transportation deduction can be calculated using either:

  1. The Standard Mileage Rate: In 2024, the rate is 67 cents per mile, plus tolls and parking.
  2. Actual Expenses: Include gas, maintenance, insurance, depreciation, and other car-related costs. Allocate expenses between personal and business use based on the miles driven for each.

Employees vs. Self-Employed Deductions

Under the Tax Cuts and Jobs Act (TCJA), employees cannot deduct unreimbursed transportation costs from 2018–2025. These deductions, previously classified as “miscellaneous itemized deductions,” are suspended during this period.

However, self-employed individuals can still deduct qualifying transportation expenses related to their business. Starting in 2026, employees may regain the ability to deduct certain transportation expenses, provided their total miscellaneous deductions exceed 2% of their adjusted gross income.

Seek Expert Advice

Navigating tax laws can be complex, especially with potential changes on the horizon. Our team is here to help you understand your options and ensure you’re maximizing your deductions.

FAQs

1. Can I deduct the cost of commuting to and from work?
No, commuting expenses are considered personal and are not deductible, even if you perform business-related tasks during your commute.

2. Are travel expenses between two business locations deductible?
Yes, travel between business locations or for business purposes (e.g., client meetings) is deductible.

3. What’s the best way to track deductible transportation expenses?
Maintain detailed records, including receipts for public transportation or mileage logs for personal vehicles. Use either the standard mileage rate or actual expenses for calculations.

4. Can employees deduct unreimbursed transportation expenses?
Not currently. From 2018–2025, employees cannot deduct these costs due to TCJA regulations. Self-employed individuals, however, can deduct business-related transportation expenses.

Contact Us Today

Have questions or need help with your tax planning? Contact us to learn how to maximize your deductions and reduce your tax burden effectively.

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Understanding Business Meal and Entertainment Deductions for 2024: What You Can and Can’t Write Off

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If you’re unsure about the rules for deducting business meals and entertainment expenses, you’re not alone. Recent changes to federal tax laws have left many business owners seeking clarity. Below we will break down what you can and can’t deduct in 2024 to help you maximize your tax benefits while staying compliant with IRS regulations.

Current Rules for Business Meal and Entertainment Deductions

The Tax Cuts and Jobs Act (TCJA) significantly altered the landscape for deducting business-related entertainment expenses. Most entertainment costs, such as treating clients to golf outings or sporting events, are no longer deductible.

However, business-related meal expenses remain partially deductible. You can generally write off 50% of the cost of food and beverages, provided they are related to business activities or consumed during business-related entertainment.

What Food and Beverage Costs Are Deductible?

The IRS broadly defines food and beverage expenses to include everything from meals to snacks, as well as associated costs such as sales tax, delivery fees, and tips. For these costs to qualify as 50% deductible, the following conditions must be met:

  • Purchased Separately: The food and beverages must be purchased separately from entertainment activities. Alternatively, they can appear as a separate item on a bill, invoice, or receipt showing the standard selling price of the food and beverages.
  • Reasonable Value: If they aren’t purchased separately, you can deduct 50% of the reasonable value of the food and beverages.

Key Requirements for Business Meal Deductions

For a 50% deduction to apply, the following conditions must be satisfied:

  1. The meal must not be lavish or extravagant under the circumstances.
  2. You or an employee of your business must be present at the meal.
  3. The meal must involve a business associate — someone with whom you expect to conduct business, such as a client, prospective customer, supplier, or employee.

Pro Tip: You can even deduct 50% of the cost of a business meal for yourself, such as when working late into the night.

Deductions While Traveling on Business

When traveling for work, you can deduct 50% of the cost of meals. However, it’s important to keep detailed records, including receipts, to substantiate your expenses.

Note that meal expenses for spouses, dependents, or others accompanying you on a business trip are generally not deductible unless:

  • The individual is an employee of your company.
  • The trip is for legitimate business purposes.

100% Deductible Business Meal and Entertainment Expenses

Certain meal and entertainment expenses remain 100% deductible under IRS regulations, including:

  • Employee Events: Costs for recreational activities benefiting all employees, such as holiday parties or team-building events.
  • Public Events: Food, beverages, and entertainment offered at promotional events open to the public.
  • Customer Sales: Meals or entertainment sold to customers at full value.
  • Taxable Compensation: Costs reported as taxable income to employees or non-employees (e.g., a prize dinner cruise reported on Form 1099).
  • Restaurant or Catering Businesses: Food and beverages provided to paying customers and consumed by employees at the worksite.

Navigating Complex Rules

Understanding IRS rules for business meal and entertainment deductions can help you reduce your taxable income, but the regulations can be nuanced. For example, mixing entertainment and meal expenses on the same bill can create complications unless they are clearly itemized.

Bottom Line

While deductions for business-related meals and entertainment expenses are still available in some situations, navigating the rules requires careful attention to detail. Maximizing these deductions can save you money, but compliance is essential to avoid IRS scrutiny.

Have questions or need assistance with your business deductions? Contact us today to ensure you’re leveraging every allowable tax benefit.

Optimize Your Business Tax Strategy in 2024

Understanding what you can and can’t deduct for business meals and entertainment can make a big difference during tax season. Stay informed and proactive to make the most of your eligible expenses.

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Gifts, Parties, and Tax Benefits: A Guide to Grateful Celebrations

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The holiday season is here. During this festive season, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It’s a good time to review the tax rules associated with these expenses. Are they tax deductible by your business and is the value taxable to the recipients?

Employee gifts

Many businesses want to show their employees appreciation during the holiday time. In general, anything of value that you transfer to an employee is included in his or her taxable income (and, therefore, subject to income and payroll taxes) and deductible by your business.

But there’s an exception for noncash gifts that constitute a “de minimis” fringe benefit. These are items small in value and given so infrequently that they are administratively impracticable to account for. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits aren’t included in your employees’ taxable income yet they’re still deductible by your business. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Key point: Cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small they are and infrequently they’re given.

Customer gifts

If you make gifts to customers or clients, they’re only deductible up to $25 per recipient, per year. For purposes of the $25 limit, you don’t need to include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as small items imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4 each.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (for example, a gift basket for all of a customer’s team members to share) as long as the cost is “reasonable.”

A holiday party

Under the Tax Cuts and Jobs Act, certain deductions for business-related meals were reduced and the deduction for business entertainment was eliminated. However, there’s an exception for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and excludible from recipients’ income) so long as they’re primarily for the benefit of employees who aren’t highly compensated and their families. If customers, and others also attend, a holiday party may be partially deductible.

Holiday cards

Sending holiday cards is a nice way to show customers and clients your appreciation. If you use the cards to promote your business, you can probably deduct the cost. Incorporate your company name and logo, and you might even want to include a discount coupon for your products or services.

Boost morale with festive gestures

If you have questions about giving holiday gifts to employees or customers or throwing a holiday party, contact us. We can explain the tax implications.

© 2023

 

Q&A below:

 

How can employers determine if a noncash gift qualifies as a "de minimis" fringe benefit?

Employers can determine if a noncash gift qualifies as a "de minimis" fringe benefit by considering its value and frequency. The IRS considers a de minimis fringe benefit to be one that has a low value and is provided infrequently. While there is no specific cutoff for the value of a de minimis gift, noncash gifts with a value of $75 or less are generally considered de minimis. In addition, gifts that are given sporadically or on special occasions—in this case, for the holidays—are more likely to qualify as de minimis.

 

What are some differences between cash and non-cash gifts to employees from a tax perspective?

Cash gifts to employees are typically considered taxable income and must be reported on the employee's W-2 form. The employer is responsible for withholding the appropriate amount of federal income tax, Social Security tax, and Medicare tax from the cash gift. Non-cash gifts, on the other hand, may be treated differently for tax purposes. If a non-cash gift is considered a de minimis fringe benefit (i.e. small in value and given infrequently), it may be excluded from the employee's taxable income. Both cash and non-cash gifts are generally deductible for the employer, limited to $25 per employee but not limited when gifting to a corporation as long as it is considered “reasonable”.

 

Are holiday parties tax-deductible?

Holiday parties are fully deductible (and excludible from recipients’ income) so long as they’re primarily for the benefit of employees who aren’t highly compensated and their families. If customers, and others also attend, a holiday party may be partially deductible.

 

Are holiday cards sent to customers and clients tax-deductible?

If you use the cards to promote your business, you can likely deduct the cost. Incorporate your company name and logo, and you might even want to include a discount coupon for your products or services.

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A Company Car Is A Valuable Perk But Don’t Forget About Taxes

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One of the most appreciated fringe benefits for owners and employees of small businesses is the use of a company car. This perk results in tax deductions for the employer as well as tax breaks for the owners and employees driving the cars. (And of course, they enjoy the nontax benefit of using a company car.) Even better, current federal tax rules make the benefit more valuable than it was in the past.

Rolling out the rules

Let’s take a look at how the rules work in a typical situation. For example, a corporation decides to supply the owner-employee with a company car. The owner-employee needs the car to visit customers and satellite offices, check on suppliers and meet with vendors. He or she expects to drive the car 8,500 miles a year for business and also anticipates using the car for about 7,000 miles of personal driving. This includes commuting, running errands and taking weekend trips. Therefore, the usage of the vehicle will be approximately 55% for business and 45% for personal purposes. Naturally, the owner-employee wants an attractive car that reflects positively on the business, so the corporation buys a new $57,000 luxury sedan.

The cost for personal use of the vehicle is equal to the tax the owner-employee pays on the fringe benefit value of the 45% personal mileage. In contrast, if the owner-employee bought the car to drive the personal miles, he or she would pay out-of-pocket for the entire purchase cost of the car.

Personal use is treated as fringe benefit income. For tax purposes, the corporation treats the car much the same way it would any other business asset, subject to depreciation deduction restrictions if the auto is purchased. Out-of-pocket expenses related to the car (including insurance, gas, oil and maintenance) are deductible, including the portion that relates to personal use. If the corporation finances the car, the interest it pays on the loan is deductible as a business expense (unless the business is subject to the business interest expense deduction limitation under the tax code).

On the other hand, if the owner-employee buys the auto, he or she isn’t entitled to any deductions. Outlays for the business-related portion of driving are unreimbursed employee business expenses, which are nondeductible from 2018 to 2025 due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. And if the owner-employee finances the car personally, the interest payments are nondeductible.

One other implication: The purchase of the car by the corporation has no effect on the owner-employee’s credit rating.

Careful recordkeeping is essential

Supplying a vehicle for an owner’s or key employee’s business and personal use comes with complications and paperwork. Personal use needs to be tracked and valued under the fringe benefit tax rules and treated as income. This article only explains the basics.

Despite the necessary valuation and paperwork, a company-provided car is still a valuable fringe benefit for business owners and key employees. It can provide them with the use of a vehicle at a low tax cost while generating tax deductions for their businesses. (You may even be able to transfer the vehicle to the employee when you’re ready to dispose of it, but that involves other tax implications.) We can help you stay in compliance with the rules and explain more about this fringe benefit.

© 2023

Q&A below:

What are some employer and employee tax benefits associated with using a company car?

For employers, some tax benefits associated with using a company car include tax deductions for expenses related to the company car (such as fuel, maintenance, and insurance) and depreciation deductions for the value of the company car over time. For employees, some tax benefits associated with using a company car include tax-free fringe benefits if the company car is used primarily for business purposes and potential tax deductions for business-related expenses incurred while using the company car (such as parking fees or tolls).

What are some important rules and details regarding tax treatment of company cars?

It is important to distinguish between personal and business use. If the employer buys the car for the employee, the cost for personal use of the vehicle is equal to the tax the employee pays on the fringe benefit value of the car’s personal-use mileage portion. In contrast, if the owner-employee buys the car to drive the personal miles, he or she would pay out-of-pocket for the entire purchase cost of the car. Assuming the employer buys the car, personal use is treated as fringe benefit income. For tax purposes, the employer treats the car much the same way it would any other business asset, subject to depreciation deduction restrictions if the auto is purchased. Out-of-pocket expenses related to the car are deductible, including the portion that relates to personal use. If the employer finances the car, the interest it pays on the loan is deductible as a business expense (unless the business is subject to the business interest expense deduction limitation under the tax code). On the other hand, if the employee buys the auto, he or she isn’t entitled to any deductions. In this case, outlays for the business-related portion of driving are unreimbursed employee business expenses, which are nondeductible from 2018 to 2025 due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. If the employee finances the car personally, the interest payments are nondeductible.

Are there any helpful best practices associated with supplying a company car?

Documentation and recordkeeping are essential. Personal use needs to be tracked and valued under the fringe benefit tax rules and treated as income. It is important to speak with a tax professional to ensure compliance with tax laws related to company cars.

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