Business Entertainment: What’s Deductible?

Is the cost of entertaining your clients tax-deductible?  It depends.  

Deductions are generally limited to 50% of the cost, although there are exceptions to this rule. 

Under long-standing rules, entertainment expenses may be deducted only if the entertainment is “directly related to” or “associated with” your business. 

To be directly related to your business, you must show that:

• The main purpose of the combined business and entertainment was the active conduct of your business
• You engaged in business with the person during this time
• You had more than a general expectation of deriving income or some other specific business benefit at some future date

It’s far more common to deduct entertainment that is associated with your business.  In this case, you must show a clear business purpose for the expense, such as generating new revenue or strengthening an existing business relationship.

A taxpayer qualifies for deductions if the entertainment takes place on the same day as a substantial business discussion.  If the client or customer is from out of town, the entertainment may occur on the day before or after the substantial business discussion.

Note that the IRS may object to deductions for entertainment expenses that it deems “lavish or extravagant.” 

As strict record-keeping requirements are in force for this type of deduction, taxpayers should be certain to document expenses in an account book, diary, log, trip sheet or similar record.  The retention of other documentary evidence to support deductible expenses, such as receipts, canceled checks or bills is also important.

To read the entire article, please visit www.cpapracticeadvisor.com.

Charitable Contribution Tax Strategies

Charitable contributions provide the greatest flexibility for most people because their timing is completely discre­tionary, as a rule.  Keep in mind that gifts to charit­able organizations are deductible when paid and that pledges alone don’t count, being deductible in the year that they’re fulfilled, not in the year that they’re made.

Within these guidelines, donors have some flexibility, in order to maximize their contributions:  

- accelerate payments by taking care of pledges to religious groups, schools, and other charities this year, instead of next
- donate before year-end the entire amount that you expect to give to your favorite charity next year
- count checks as deductions for 2014 as long as the payments are put in mailboxes in sufficient time for letters to be postmarked by midnight on 12/31/14
- credit card payments, whether for charitable donations, medical services, or business expenses qualify for 2014 deductions as soon as you authorize the charges
- consider borrowing to accel­erate the deduction; the tax savings may more than offset the interest expense of a short-term loan
- consider donating stocks, real estate or other investments that you’ve owned for more than 12 months and are worth more than you paid for them
- contributions of stock or other property are deductible for 2014 as long as the gifts are completed by 12/31/14


Another way to lower taxes is to clean out and donate the contents of your closets, attic, and garage now, rather than waiting until next spring.  Just make sure to get a receipt showing the fair market value of what you donate; otherwise, the tax takers may disallow all or part of your deduction.  If the charity doesn't give a receipt, prepare your own detailed description listing clothing, furniture, and so forth.

When you claim a deduction of over $500 for non-cash gifts of property like clothing and toys, complete Form 8283, available at irs.gov, and submit it with your return.


The instruction booklet that contains IRS tax forms offers this tax-saving tactic: “You can make a contribution (gift) to reduce the public debt.  If you wish to do so, make a separate check payable to Bureau of the Public Debt.”  The IRS notes that you can deduct this gift as a charitable contribution on next year’s tax return if you itemize your deductions on Schedule A.

 

To read the entire article, please visit www.accountingweb.com.

YouTube Videos from the IRS Focus on Healthcare Reform, Tax Form Changes

The Internal Revenue Service (IRS) has released several new YouTube videos to help taxpayers get important information about the Affordable Care Act and tax return filing.


The new videos are part of a series on the IRS YouTube channel and feature IRS Commissioner John Koskinen discussing the premium tax credit and the individual shared responsibility provision.  

These provisions of the Affordable Care Act will affect people’s tax returns next year when they file for 2014.

In the video about the premium tax credit, the Commissioner talks about how it can help make purchasing health care through the Health Insurance Marketplace more affordable for people with moderate incomes.


“You can get advance payments of the premium tax credit paid directly to the insurance company to lower your monthly premium, or you can apply for the premium tax credit when you file your tax return for 2014,” Koskinen said.

Additional videos about the Affordable Care Act will be available soon. 

To read the entire article, please visit www.cpapracticeadvisor.com.

Unpaid Payroll Taxes Could Fall on the Shoulders of a Partner

In the latest Kiplinger Tax Letter, you can read more about the following story and more.   

The IRS billed a partnership that failed to send in withheld taxes and filed tax liens against the general partner, even though the agency never billed her for the taxes. She filed for bankruptcy and then sought to have the liens invalidated.  The court did not allow this because state law makes partners liable for their firms’ debts. 

Since the IRS billed the partnership within three years of the payroll tax delinquency, it has 10 years from the date of assessment to collect from the general partner, so the tax liens on the partner remain in force, despite her bankruptcy (Pitts, D.C., Calif.).

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