On December 10, the IRS published a notice which detailed how the IRS planned on implementing the part of the Tax Cuts and Jobs Act for “qualified parking” benefits to employees. As the rules are currently written, there will be many parking lot expenses that will be not-deductible for 2018. Click the orange circle to listen in.

 

SCRIPT:

There’s been a lot of tax law changes. Today, I thought we would talk about something really simple: parking your car; there’s been changes on this. On December 10, 2018, the IRS published a notice which detailed how the IRS planned on implementing the part of the Tax Cuts and Jobs Act for “qualified parking” and the benefits to employees. As the rules are currently written, there will be many parking lot expenses that will not be deductible for 2018.

You have to have a parking lot for employees to come and park and do their job and customers to come in, and that’s part of doing business. There are expenses with that. You’re telling me this has changed now?

So the businesses that are going to be affected by these rules are:

• Commercial, manufacturing and non-profits where most of the parking is used for employees.
• If most of your parking is for customers, let’s say retail businesses, it shouldn’t have a great impact

Why will those businesses be affected then?

• The ways the rules are currently written, any business where a portion of the parking lot is reserved for or used predominately by employees is affected by this notice.
• If you have a business where most of the parking is used by customers or is for your customers, you will not be impacted. That is why many retailers should be ok.

When are the regulations effective?

• Even though the rules came out on December 10, 2018, the rules are actually in effect as of January 1, 2018.
– So it’s retroactive, I see that.

What expenses are not deductible then?

• Expenses that are not deductible that may have been deductible in the past include but not limited to repairs, maintenance, utility costs for your light poles and things like that, insurance, property taxes, interest, snow removal, leaf removal, trash removal, cleaning, landscape costs, security, rent and lease payment.
• Depreciation not included. Depreciation you can still deduct.

Well, yeah, for the northern climates such as Wisconsin ,removing snow can get expensive. We’ve been lucky this year, but for the south, that probably doesn’t affect them that much.

How does the IRS calculate all of this?

• Well, what the IRS said since these rules are fairly new, a business can use any reasonable method to calculate the “non-deductible portion.” And that is calculated essentially by looking at it in three ways:

  1. The first one is that you have to count the reserved spots that you have for your employees. This can be anything from a sign that says, “Reserved for Employees Only” or a parking lot sign as you drive in that says, “Employee Parking Only.” Those would be in the IRS’s eyes considered to be reserved employee spots.Then what you do is you take the rest of the spots that are in your parking lot and you say, “Okay, who are going to be using the rest of these spots? Is it going to be an employee, or is it going to be a customer?” If it’s mainly an employee, those don’t count either. So you take that and you figure out the percentage. So let’s say 60% of your parking lot is used for your employees and 40% is used for customers. There is a chance that now 60% of your expenses will be deductible. It sounds complex and it’s always best to hire a professional for this.
  2. Determining the primary use of the remaining spots (greater than 50% test during a normal business day.
  3. Calculate the exemption for the portion for the general public spots.

What is the best thing to do at this point?

• Talk to your CPA.

With these rules being relatively new, I would guess that there may be some backlash to them. So, it’ll be important here over the next number of months to keep track of what happens with these rules. The best way to do that is to continue to be in touch with your CPA.

So it could be repealed?

It could potentially be repealed, but as of now they are the law.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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