The construction industry, by its very nature, depends on mobility and getting to where the projects are located, whether that is across a city, region, state or country. Costs related to mobility are unique and there are various methods of covering or reimbursing your workforce for those costs. The methods you use and your compliance with the related regulations can impact the ultimate cost to your company as well as your employees and the difference can be significant.
Contractors have faced myriads of tax changes over the past several years. Some of the changes directly impact treatment of business travel, meals and entertainment. An overview of the most recent changes follows:
Restaurant Meals – 100% deductible for 2021 and 2022
On December 27, 2020, the Consolidated Appropriations Act allowed full deductibility for restaurant meals paid or incurred in calendar years 2021 and 2022. IRS Notice 2021-25 clarified that restaurant meals are provided by a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business premises. However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store.
The IRS also explained the treatment of the meal portion of per diem expenses in conjunction with the temporary 100% deduction. IRS Notice 2021-63 allows a taxpayer to treat the meal portion of the per diem as 100% deductible if the substantiation requirements are met.
IRS Standard Mileage Rate
The IRS provides a standard mileage rate for taxpayers as an option for computing automobile expenses in certain situations which is described in greater detail in the full published document. Typically, the IRS determines the rate before the beginning of each calendar year. For calendar year 2022, the IRS published the standard mileage rate of $0.585 cents per mile. However, due to inflation, the IRS increased the standard mileage rate to $0.625 cents per mile beginning July 1, 2022. This rate will apply through December 31, 2022.
Bonus Depreciation Lowers
Contractors have gotten familiar over the last few years of the ability to take 100% bonus depreciation on new and used fixed assets put into place by the Tax Cuts and Jobs Act (TCJA). The 100% bonus depreciation remains for 2022 but starting in 2023 begins to phase out to 80% and continues to step down through 2025. Contractors may want to consider purchasing and placing the fixed assets into service well in advance of the 2022 year-end.
About CICPAC
Construction Industry CPAs and Consultants (CICPAC) created the original whitepaper titled: Mobile Workforce Guidelines for Contractors in September 2020. The whitepaper provides detailed insight to the key areas you should consider when implementing the new tax standard. The intent of the publication is to present information needed to analyze which methods provide the best result for your company as well as some helpful tools to assist with compliance.
CICPAC is a national association of over 75 accounting firms who exemplify vast knowledge, respectable histories and 900+ high-quality financial and consulting professionals. When seeking the skilled professionals to help your company, visit the CICPAC Member Directory and locate a member near you.
