Follow IRS rules - M&E Deduction for pass-through entities.

Follow IRS rules - M&E Deduction for pass-through entities.

What problem does it solve? 1. New Jersey explicitly allows pass-through entities a deduction of 100% of M&E expense. It’s too generous. 2. Often times, M&E expenses are personal and/or not demonstrable. 3. It will save auditor’s time when examining the tax returns. 4. Tax fairness: For individuals, TCJA eliminated the deduction for Unreimbursed employee expenses (job meals and entertainment, job travel etc.) on Form 1040, Schedule A. Tax burden have shifted significantly from business taxpayers to individuals. What is your solution and who does it apply to? Currently, all pass-through entries are permitted to deduct 50% of meals & entertainment expenses not deductible for Federal purposes in computing the NJ income that is passed through to its shareholders. NJ should conform to new federal TCJA law governing the deduction of M&E. The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present. The deduction should either be eliminated or capped on a percentage or dollar amount basis. What is the anticipated impact? Anticipated impact 1. Increase in gross income tax revenue because NJ business income will be higher now. 2. Businesses will no longer be able to claim personal meals and entertainment expenses as a business expenses. 3. If New Jersey follows Tax Cuts and Job Act relating M&E changes for pass-through entities, then it would create tax uniformity and alleviate confusions among tax examiners and prepares.


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