Taxpertise by Bonnie Lee

Author:Bonnie Lee
Language: eng
Format: epub
Publisher: Entrepreneur Press
Published: 2011-03-10T00:00:00+00:00

CHAPTER 12

Business Meals and Entertainment

Are We Having Fun Yet?

Vince has a singing telegram service. When he was audited recently, the focus was on meals and entertainment. The IRS didn’t care about the rest of his expenses; it only wanted to see receipts and documentation for those two categories. It’s one of the IRS’s favorite audit targets simply because most folks don’t know the rules.

By the end of the session, Vince owed an additional $28,000 in taxes, penalties, and interest for a three-year period.

What was his downfall? Part of the problem was lack of documentation. Vince had many receipts with no indication of the business purpose or whom he entertained. The story behind other receipts was that no substantial business was conducted; Vince merely said, “They were clients. We went out to have some fun. It was good for business. Whaaaaat? What do you mean it’s not deductible?”

However, the major contributing factor to the increase in taxes was the disallowance of one particular entertainment expense. Vince owns a cabin located 50 miles from his home. He proudly showed the auditor detailed records of dates, times, and amounts spent backed up with receipts and even photos to prove that the cabin was used primarily to entertain clients, employees, and other business associates. And hey, every bit of it was true. Vince is the ultimate party animal and he believes the best way to promote business is to do so with a lampshade on his head. And it works for him. He’s got a very successful enterprise.

The auditor was impressed with his documentation skills.

Then he gave Vince the bad news. “You cannot deduct an entertainment facility as entertainment expense. You can’t buy a yacht or an airplane or a cabin in the woods and write it off as business entertainment.”

Vince was floored. “How do those big corporate guys do it?”

The auditor said, “Well, they don’t—certainly not as entertainment expense. They might write it off as office expense. Or maybe they set up a small charter business in their dad’s name and take the write-off that way. Have you read Grisham’s King of Torts?” Then he punched a few keys on his computer and handed Vince the bill.

Are you one of the many self-employed businesspeople who feel a little gun-shy about writing off your travel, meals, and entertainment expenses? Or did I just make you gun-shy with Vince’s story? You’re out there having fun in the name of business and worried that the IRS will not equate those costs to valid tax deductions, correct?

Of all the business activities you perform, travel, meals, and entertainment are preferable to placing an office supply order or writing a check for a subscription to My Boring Trade magazine. Oh, the guilt! Work is no longer drudgery when you’re enjoying a fabulous dinner while cutting an exciting business deal. Or flying off to Aruba for the annual trade show. What could be better? Writing it off, that’s what. And so you do. And so you should.

Fast-forward and drain out the color.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.