As a business owner claiming deductions for employee’s salaries and wages are clear, yet there are a number of other fringe benefits that you may provide that can also have an impact on your tax liability. The rules and requirements are sometimes convoluted but it is worth the time investment as the deductions can often times be significant.
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Fringe Benefits
The benefits that are outside an employee’s normal remuneration are referred to by the IRS as fringe benefits. To make matters more complicated, some benefits are taxable and others are non taxable. These designations also differ between the ability of an employer able to claim the deduction and whether the employee must also report the benefit for their own income, but the two instances are treated separately by the IRS.
For example even if the benefit is not taxable for the employee’s individual tax return you may still be able to deduct the cost of providing the benefit as the employer. These fringe benefits can include company cars, health insurance, educational plans, retirement plans, business provided cell phones, de minimis gifts and even meals provided on site to maintain productivity are 100% deductible expenses.
The Differences
There are large differences in employee expenses that can be claimed as business expenses and those fringe benefit expenses that are also required to be reported on the employee’s gross wage statements. As an example, transportation provided to employees like a vehicle for commuting to work or even a bicycle can be written off by the company but also must be included within their gross wages at fair market value for their use as taxable income.
Whereas providing discounts on company products or services, tickets to theatre or sporting events, use of company property such as a copier can be provided to employee’s tax free for their income but are still tax deductible for the employer. Educational assistance, life insurance up to $50,000, dependent care assistance and tuition reduction fringe benefits are also benefits that are tax free to the employee and deductible by the company.
Exclusions and Discriminatory Benefits
As a business you also need to be careful of fringe benefits that are provided to a discriminate few. By providing fringe benefits that favor certain employees or are targeted towards only the top employees in the company than the benefit would not qualify as a non taxable benefit for the employee and must be included in their gross wage statements.
The fringe benefits that are excluded from gross wages are considered exclusions and each category of exclusion, such as those listed above including commuting transportation, meals, educational assistance, tuition reduction, cafeteria plans, health benefits, athletic facilities, de minimis gifts, employee stock options, employer provided cell phones, lodging on premises, group term life insurance, moving expenses and even adoption assistance have their own unique requirements in order to be excluded from an employee’s gross wages as a taxable benefit.
Meet with a tax professional to see how your company’s fringe benefits could be made more compliant with current regulations to provide the best benefits at the least cost.
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