There are many specific guidelines, but some of the most common questions focus on the following topics:


Client business meals where business is conducted, the taxpayer is present, and the expense is not lavish or extravagant.


Office holiday party, company outings, and picnics.


Meals during business travel or at a conference.


Meals provided for the convenience of the employer or overtime employee meals.


Entertainment at sporting events, golf course, or similar events.


Still 50 percent deductible


The deduction of business interest expense is limited to the sum of:


• Business interest income


• 30 percent of the business’s Adjusted Taxable Income (ATI) for the tax year


• Interest from floor plan financing (generally impacts automobile dealerships)


ATI is equal to the business’s taxable income, but excludes:


Still 100 percent deductible (falls under Section 274(e) exception)


Still 50 percent deductible


Now 50 percent deductible, will be nondeductible after 2025


Now nondeductible


• Any income, gain, deduction, or loss which is not related to the business


• Business interest income and expense • Any net operating losses, if applicable


• Qualified Business Income (QBI) deduction, which is part of the new tax law


• Depreciation, amortization, or depletion


There is uncertainty regarding meals that occur in connection with entertainment events. Under the new law, meals that are related to operating a trade or business are 50 percent deductible; however, the law is silent with respect to meals that are provided in connection with an entertainment event. We believe that the expense of these particular meals fall under the definition of operating a trade or business and would be entitled to a 50 percent deduction. However, until further guidance is available from the IRS, the tax treatment is uncertain.


Our recommendation is to create separate general ledger accounts for meals expense and entertainment expense. Typically, these are grouped in a single account, as both expenses were 50 percent deductible. Going forward, it is advisable to separate these expense items in order to determine the deductible amount.


Interest Expense


In general, under the previous tax law, taxpayers were entitled to fully deduct business interest expense. The new tax law may limit a taxpayer’s business interest expense deduction. The new limitation is effective for tax years beginning after Dec. 31, 2017. There are a few exceptions to the limitation, most notably for taxpayers with gross receipts that do not exceed $25 million.


In other words, ATI is equal to taxable earnings before interest, taxes, depreciation, and amortization. It is important to note that depreciation, amortization, and depletion will be included in ATI starting with tax years beginning after 2021, thus reducing ATI. The reduction in ATI will further limit the interest deduction. This will have a significant impact on capital intensive businesses. Any disallowed business interest expense can be carried forward indefinitely.


The limitation is determined at the entity level, on an entity-by-entity basis, but deductibility is determined at the shareholder/partner level. For S corporations, any disallowed interest carries over at the entity level until the S corporation has enough income to free up the previously disallowed interest expense. Partnerships treat any excess interest expense differently. The excess interest is allocated to the partners and carried over at the partner level until the partner is allocated enough taxable income from that partnership to free up the previously disallowed interest expense.


This new business interest expense limitation is complex and will likely have a big impact on carriers. It is important to understand the implications when tax planning for 2019 and beyond.


For further information on these topics or other ways the new tax law could affect the transportation industry, please contact a KSM advisor or visit www.ksmcpa.com.


By Troy Hogan & Logan Stamps, Katz, Sapper & Miller’s Transportation Services Group


® 11


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44