Significant Tax Savings for Manufacturers and Distributors Under the Tax Cuts and Jobs & CARES Acts

This article was originally published in July 2019. It was updated in March 2021 to reflect new information available.

Under the Tax Cuts and Jobs Act (TCJA) and the CARES Act, manufacturers, distributors, and retailers can take advantage of substantial tax incentives for small businesses with average gross receipts of $26 million or less (for the three prior years). These incentives are especially applicable to small businesses with inventories.

The three incentives the TCJA makes for small businesses are:

  1. Allows the cash method for tax purposes,
  2. Treats inventory costs as non-incidental materials, and
  3. Exempts the business from the interest expense limitation.

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New Entertainment & Club Dues Rules Under Tax Reform

The Tax Cuts & Jobs Act (TCJA) arrived with significant guidance, setting new rules for entertainment and club dues that every business owner needs to know.

Prior to TCJA, meals and entertainment were 50% deductible if not lavish or extravagant and there was a business purpose. Among the 50% deductible items category were event tickets, golf outings, per diem meals, client lunches, and more.

Rules for Entertainment

Starting in 2018, entertainment expenses are no longer deductible:

  • The 50% deduction to bring clients to the Huskies, Mariners, or other sporting events is now lost.
  • The 80% charitable deduction related to seat-related gifts to college sporting events is also disallowed.

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More Clarity on Taxable and Tax-Free Employee Benefits Under Tax Reform

Note: This article, originally published on January 12, 2018, has been updated to include the latest developments regarding the Tax Cuts and Jobs Act.

Among many other things, the Tax Cuts and Jobs Act affected how the government will tax certain employee benefits. Changes were made simultaneously to whether employers could take a deduction for certain benefits and whether employees could exclude certain benefits from income.

The intersections of these multiple changes (and the compounding factor of a whole new category of unrelated business income to tax-exempt employers) led to unprecedented confusion. Treasury has spent the better part of 2018 issuing guidance in the form of Publications,

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Update on Qualified Transportation Benefits Under Tax Reform

Note: This article, originally published on February 21, 2018, has been updated to include the latest developments regarding the Tax Cuts and Jobs Act.

Prior to passing the Tax Cuts and Jobs Act of 2017, certain transportation benefits and, in some rare cases, onsite athletic facility benefits were treated as tax exempt to employees — and tax deductible to employers. This is no longer the case.

Beginning January 1, 2018, for the benefits listed below, there has been a change in the tax law. Originally, the changes appeared to allow employers to determine the taxability of the employee benefits by whether the employer took a tax deduction for the cost of said benefits.

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The IRS Draft Form 990-T Gives UBI Clues (Updated)

Note: This article, originally published on October 16, 2018, has been updated to include the latest developments regarding the Tax Cuts and Jobs Act. 

The IRS published a draft 2018 Form 990-T* and Instructions** for exempt organizations. These will help organizations gain an understanding of its 2018 unrelated business income (UBI) tax liability. Treasury (the IRS) is using the Form 990-T to provide guidance on two of the most impactful changes to UBI from the Tax Cuts and Jobs Act:

  • The creation of UBI from the provision of non-taxable qualified transportation benefits to employees; and
  • The segregation of separate trade or business activities with losses when there is more than one trade or business activity.

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