Fringe benefits may be such an established part of your business compensation package that you’re fairly casual about them. Nevertheless, it’s wise to review your policies periodically to make sure you’re correctly classifying the fringe benefits you provide and getting the maximum tax deduction.
For example, say you’ve been including expenses such as break room coffee and snacks in your “meals and entertainment” general ledger account. The practice could be costing you at year-end. Why?
Generally, only 50% of the cost of meals and entertainment expenses are deductible on your federal income tax return. However, office snacks provided to workers on your business premises qualify for 100% deductibility. Separating the expenses makes it easy to determine the proper tax treatment.
Health insurance premiums may also require separate accounting. For example, when you own more than 2% of the stock of an S corporation, premiums you pay for your policy must be reported on your Form W-2 at year-end as part of your wages.
The health insurance premiums you pay for your employees are generally not included in wages, though they may be reported on Form W-2.
Fringe benefits can be a valuable tax break for your business. To be deductible, they must be an ordinary and necessary business expense and meet certain other requirements.
Give us a call. We’ll help you untangle the rules.