Tax Breaks: The Ordinary and Necessary Business Expenses Edition

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This week, social media was full of reactions to the fatal shooting of UnitedHealthcare CEO Brian Thompson on December 4, outside a Midtown Manhattan hotel. The shooting sparked boardroom conversations about whether companies need to ramp up protection for C-suite executives. Thompson had no personal security detail, and it appears the alleged shooter targeted him because of his position in the healthcare insurance industry.

Fewer public companies than you might think—by one count, only about a quarter of them—provide personal security to executives. For compensation purposes, security detail is considered a personal benefit for executives and is reportable as a perquisite. Perquisite isn’t a word that rolls easily off the tongue, and understandably so—they typically don’t apply to ordinary employees. Perquisites are non-cash benefits, usually given to top executives to reward corporate loyalty. Since they tend to be higher-end perks, like club memberships and cars for personal use, they are generally not tax-favored.

Since perquisites are more of an exception than a rule, amounts paid must be disclosed in corporate proxy statements—that’s a Securities and Exchange Commission (SEC) rule. According to the SEC, a company must disclose perquisites or other personal benefits for executive officers if the amounts exceed $10,000. Specifically, regarding personal security, the company must disclose the executive officer’s identity, the nature of such arrangements, and the cost to the company.

Ironically, it may be easier for an ordinary self-employed person to deduct some home security costs (the share attributable to business use of the home) or for Taylor Swift to write off her extensive security squad as “ordinary and necessary” business expenses (☆) than it is for some lower profile CEOs to get protection on a tax-favored basis.

Also in the news? The Corporate Transparency Act. As I reported last week (☆), a judge in the U.S. District Court for the Eastern District of Texas threw the fate of the CTA into question, blocking the U.S. Department of Treasury from enforcing beneficial ownership information (BOI) reporting requirements across the country.

Business owners and their owners are still wondering whether to file BOI reports. While it’s true that the U.S. government has filed an appeal, it’s uncertain how long that might take to wind through the court system.

While the matter is pending, FinCEN has posted a statement on its website that “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.” The agency added that “reporting companies may continue to voluntarily submit beneficial ownership information reports”—without the pause, the due date for filing a report for companies formed before January 1, 2024, was January 1, 2025.

With the new year looming, my inbox has been stuffed—along with my traditional box—with solicitations. The giving season is officially in full swing, and charitable organizations are hoping that donors are feeling generous after an overall drop in giving.

There may be a variety of explanations for the giving drop, but many point the finger at the 2017 tax reform. Under the Tax Cuts and Jobs Act (TJCA), the standard deduction for individuals nearly doubled and has continued to grow to keep pace with inflation. In 2025, the standard deduction amounts will increase to $15,000 for individuals and married couples filing separately; $30,000 for married couples filing jointly; and $22,500 for heads of household. (You can see the 2024 standard deductions here.) At the same time, the 2017 law put new limits on some other itemized deductions. That means fewer taxpayers are itemizing—and you must itemize your deductions on Schedule A to claim a charitable deduction.

Many Americans donate even if they can’t claim a tax deduction. Some tax rules that apply to charitable donations—like checking to see that the organization has its paperwork in order—are good rules to follow even if you’re not claiming a tax deduction.

In recent years, disaster relief has grabbed the public’s attention as images of suffering from fire and floods in the U.S. and wars and earthquakes abroad fill the news and social media. But along with generosity, disasters also bring out fraudsters ready to exploit these charitable urges. The National Consumers League says charity scams nearly doubled in 2023, an increase it links to record-breaking natural disasters. After the North Carolina floods, law enforcement authorities issued the standard warnings and advice: Don’t respond to unsolicited phone calls, emails, or texts asking you to give, and don’t open any attachments or links in emails and texts—they could be phishing attempts or be directing you to fake charities impersonating real ones.

If you’re looking to make a donation, but not sure where to give, check out Forbes’ most recent list of top charities.

There are just a few more days left to make tax moves in 2024, and we have a few ideas on how to make them count. Be sure to check back next week as we start wrapping up the year and getting ready for 2025.

Enjoy your weekend,

Kelly Phillips Erb (Senior Writer, Tax)

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Questions

This week, a reader asks:

I am renting my property to a family member. I am renting this property below market value. I am trying to help them save for buying a house later. Do I have to declare this as income?

Income is income, so yes—with some caveats. There are some additional pieces of this equation that you should consider, especially as it applies to expenses.

You didn’t say how you characterize your property—whether you treat it as a residence or a rental property.

If you treat the property as a residence, you would be subject to the regular Schedule A limitations on mortgage and property taxes.

If you treat the property as a rental—and deduct the corresponding expenses like insurance premiums, maintenance and repairs, and utilities—it’s even more important to charge fair market value for rent. The reason? If you’re not charging fair market value for rent, you can’t treat the property as a rental (it will be considered a personal residence for tax reasons), and you’ll miss out on those tax breaks.

If it qualifies as both—a rental and a personal residence—you’ll have to prorate your expenses based on the number of days used for each purpose. You won’t be able to deduct rental expenses in excess of the gross rental income limitation, but you may be able to carry forward some of these expenses to the following year, subject to the gross rental income limitation for that year. If you itemize your deductions on Schedule A, you may still be able to deduct your personal portion of mortgage interest and property taxes.

If it’s a short-term rental—which I’m guessing is not the case—under section 280A, if you rent out your residence for fewer than 15 days, you do not report any of the rental income and do not deduct any related expenses as rental expenses. This is sometimes referred to as the Augusta Rule. (☆) (If you rent your home for 15 days or more during the year, you would include all your rental income in your income.)

And if you’re extending credit or allowing your family to borrow money to pay, it’s worth noting that below fair market loans can be tricky. (☆)

Finally, depending on your situation, federal and state gift taxes may apply.

If you have questions, check with your tax advisor.

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Statistics, Charts, and Maps (Oh My!)

The year 2025 will introduce significant changes to value added tax (VAT) regulations in many European countries, with reforms aimed at modernizing systems, improving compliance, and addressing the challenges of a rapidly evolving digital economy. With expanded e-invoicing mandates, simplified schemes for small businesses, more flexible VAT rate applications, and new virtual event rules, these updates will likely impact many companies.

Among the changes? The number of goods and services eligible for reduced rates will expand from 21 to 29 categories, enabling reduced rates to cover a wider range of items, including environmentally friendly products and socially beneficial services. Member States will also be permitted to apply VAT rates below 5%—including zero rates—for up to seven categories, such as basic foodstuffs, medicines, and cultural items. This increased flexibility is expected to result in more rate variations across EU countries.

Slovakia will be the only EU country to increase its standard VAT rate in January 2025. The standard rate will rise from 20% to 23%, while the current reduced rate of 10% will be replaced with a new rate of 19%. The super-reduced rate of 5% will remain unchanged. These changes are part of a fiscal strategy to reduce Slovakia’s budget deficit, which is projected to decrease from 5.8% of GDP in 2024 to 4.7% in 2025.

A Deeper Dive

Taxes and politics often go hand-in-hand. And not always happily so.

The Fries Rebellion (pronounced “freeze”) was the third of three important tax revolts in the 1780s and 1790s in the early days of the United States. The first two—Shays’s Rebellion of 1786-1787 and the Whiskey Rebellion of 1791-1794—are better known. Both involved some actual bloodshed, which probably accounts for their relative fame.

The story of the Fries Rebellion begins with something unusual in American history: a federal property tax. The founders had anticipated the need for such a tax, especially in wartime. The Constitution granted the new federal government the power to impose “direct” and “indirect” taxes. That doesn’t mean that it would stic—a revolt against the federal property tax seriously affected the presidential election of 1800. (Spoiler alert: In the so-called “Revolution of 1800,” Vice President Thomas Jefferson defeated the Federalist Party candidate and presidential incumbent, President John Adams.)

Tax Filings And Deadlines

📅 February 3, 2025. Due date for individuals and businesses affected by Hurricanes Beryl and Debby (more info here (☆) and here (☆)), those in South Dakota affected by severe storms, straight-line winds and flooding that began on June 16, 2024, taxpayers in Puerto Rico affected by Tropical Storm Ernesto, and those individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024.

📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.

📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.

Tax Conferences And Events

📅 February 19-25, 2025. ABA Tax Section 2025 Midyear Tax Meeting. JW Marriott Los Angeles L.A. Registration required.

📅 May 13-14, 2025. National Association of Enrolled Agents 2025 Capitol Hill Fly-In, Washington, DC. Registration required (NAEA members only).

📅 July 21-23, 2025. National Association of Tax Professionals Taxposium 2025, Caesars Palace, Las Vegas. Registration required.

Trivia

Thomas Jefferson reportedly did not drink which of the following?

(A) Beer

(B) Tea

(C) Whiskey

(D) Wine

Find the answer at the bottom of this newsletter.

Positions And Guidance

The IRS has published Internal Revenue Bulletin 2024-51.

The IRS shared the latest quarterly update on its Strategic Operating Plan, highlighting milestones in criminal investigations, improvements to taxpayer services, and advancements in digital modernization that have revamped agency operations and safeguarded billions of taxpayer dollars. The agency also announced new results from new enforcement initiatives to improve taxpayer compliance.

Noteworthy

The AICPA & CIMA, which together form the Association of International Certified Professional Accountants, announced the inaugural graduates of the Registered Apprenticeship for Finance Business Partner (RAP) program. The two apprenticeship graduates, Daniel Grufferman, Global eCommerce Controller & Warranty Controller with Stanley Black & Decker, and Jeffrey Culp, SVP & CFO, Business Transformation Office, Liberty Bank, entered the program to enhance their skillsets to meet the ongoing talent demands of the finance and accounting profession. The graduates were honored during a National Apprenticeship Week ceremony that featured dignitaries from the U.S. Department of Labor and the Maryland Department of Labor.

Morgan Lewis announced the addition of partner Tamara Shepard to the firm’s Boston office. Drawing on her experience in private practice and as an appellate attorney at the US Department of Justice’s Tax Division, Shepard advises on a broad range of domestic and international tax issues.

Cherry Bekaert has acquired Katz Nannis + Solomon, a full-service CPA firm specializing in accounting, tax, and advisory services. This strategic acquisition enhances Cherry Bekaert’s strategy and innovation advisory business and introduces comprehensive audit and tax services to the Boston area. Founded in 1998, Katz Nannis + Solomon enhances Cherry Bekaert’s depth of industry knowledge, particularly in the Technology, Life Sciences, Financial Services, Venture Capital, and Consumer Goods sectors.

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In Case You Missed It

Here’s what readers clicked through most often last week:

You can find the entire newsletter here.

Trivia Answer

The answer is (C) Whiskey.

Thomas Jefferson’s financial records show that he purchased a great deal of tea, and he was considered the most knowledgeable wine connoisseur of his age. He loved beer so much that he had it brewed at his home in Monticello.

Jefferson abstained from spirits altogether and reportedly hated whiskey. Whiskey lovers of the day, however, became Jefferson fans. In 1791, Alexander Hamilton, the first U.S. Treasury Secretary, thought a whiskey tax might help reduce the federal deficit. It was an unpopular move and resulted in the Whiskey Rebellion. When Jefferson was elected President in 1801, one of his first orders of business was to repeal the whiskey tax.

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