Monday, November 29, 2010

How to Make Holiday Entertaining Tax Deductible

I found this interesting article please read

By Bonnie Lee

Published November 26, 2010

Holiday season is here and what better way to establish goodwill with employees and customers than throwing a rip-roaring holiday party? Besides, you can write it off, right? There is a classification on the tax return for meals and entertainment expense--so why not? Not so fast.

Smug IRS agents love nothing better than quizzing you about your holiday party then joyfully proclaiming, “disallowed!” There are rules. And essentially, the rules say, “If you’re having way too much fun, it’s not a deductible expense.” But let me quit mincing words here and give you the real lowdown.

Rule No.1 Any entertaining you provide must be directly related to the active conduct of your business or associated with a directly-related discussion that preceded or followed the meal or entertainment. This means that giving a party for the sake of establishing goodwill is not enough to make the transaction deductible.

In order to deduct the cost of the party, you must conduct business before, during, or after the party. So we’re talking product demonstration, the debut of a new product or service, or a sales pitch. And the environment must be conducive to conducting business; the IRS believes it is impossible to convince a table-dancing drunk with a lampshade on his head to try your new product.

The IRS once disallowed the write-off of tickets to a baseball game because the loud atmosphere at a ball park does not allow for a comprehensive business discussion.

Rule No. 2 The guest list determines the extent to which you can write off the party. So if you are following Rule No. 1, you have a 100% write off if:

1. The party is open to the general public, or
2. The party is for employees and their spouses

You follow the 50% limitation rules that apply in general to meals and entertainment and write off half the cost if:
1. The party is for customers and prospective customers and/or
2. Independent contractors associated with your firm (they cannot be classified as employees for this purpose).
There is no write off for attendance by family members, even if they are employees or owners. The expense is considered personal and no deduction is allowed. If there is a mix of employees, customers, and family members, allocate the expense and deduct accordingly. For example, if 10 employees and 30 customers attend, and the party costs $400, you may deduct 100% of 25% of the cost (employees) and 50% of the remaining cost (customers). Your deduction works out to $100 (cost allocated to employees) + $150 (cost allocated to customers) for a total write off of $250.

Rule No. 3 The entertainment may not be “lavish or extravagant.” That’s another one of those subjective, gray areas that can be argued all the way up to tax court. But why go there? Keep it simple. If your company grosses $100,000 a year, you likely shouldn’t be helicoptering in your guests.

It’s fine that you follow the rules, but proving you did is another matter. You want to have documentation to prove your case in the event of audit. Here are some tips:

1. Make sure the invitation announces a business purpose. For example: “Come drink in the holiday season and test drive our new cholesterol-free egg beater omelets.”

2. Keep a guest list. Have attendees sign a guest book or track RSVPs so you can prove an accurate allocation of the expense.

3. Take pictures of guests looking at your new products or a video clip of your product demonstration--anything that proves the business purpose.

4. Keep all receipts for all expenses incurred.

5. Maintain all of the above documentation in your tax file.

One final tip: When providing the expenses to your bookkeeper, separate the cost of the party that is 100% deductible to a different category from “Meals and Entertainment.” Track it under “Promotion” or “100% Entertainment” to ensure the full write-off at tax time. Otherwise, your accountant will likely apply the 50% rule to everything under “meals and entertainment” and you will have lost a valuable write-off.

Let’s party!

Friday, November 26, 2010

Black or Red Friday?

It Depends.....

This day after Thanksgiving has two theories of its meaning, I venture to say it has also two outcomes. Consummerism and its behavior will play out as usual on this day. The masses are driven by a media chaotic and frenzy way to boost sales. This is very good for the economy, but as we have learned it is really bad for consumers that spend beyond their means and place these purchases TODAY on a high interest bearing Credit Card. So, is it Black or Red?, it may help retailers go from red to black today-a good thing; but it will certainly will take many consumers into the red. Usually into many years to come. Shopping is an experience and a thrill containing euphoria and excitement. An art actually; to shop for the best bargain and the smell of new; Yes we deserve it this year.... we have gone thorugh a lot, yes we deserve to treat ourselves and buy something we want...

But consumers seldom have the big picture in mind during shopping and or a clear budget analysis. Black Friday depends on consumer behavior and impulse buying. Yes, today you can get really great deals today and you should. But ask this question: "Do I need it or is it nice to have? or Am I paying it so I can own it today or am I going to pay premium prices if I put it with a credit card?" Basic math: look at your credit card's interest rate you will owe. Consider if you can pay it before 30 days. Consider your bank's interest rate of your account. So if you still want to use your credit card you should have that money in the bank at the very least. One more question to ask oneself: "How safe is my job? what would I do if I get laid off? Do I have one year of savings to cover my expenses; btw, a year is what is taking someone to find a comparable job.

Here are the two theories of Black Friday:

The first theory about the meaning behind "Black Friday" relates to accounting and the practice of recording losses in red and profits in black. Since the sales extravaganza is often considered one of the busiest shopping days of the year, stores go from being in the red to being in the black.

The second theory about the meaning behind "Black Friday" is a much more simple, and a much more likely origin. In terms of history, a day is referred to as black if a great disaster occurred, such as the black day in the 1920s when the stock market crashed. However black doesn't always have to be a negative term and can also refer to a basically chaotic day. As shoppers mob stores on the big sale day, it is definitely a chaotic time.

For more information or to request a BUDGET CASH FLOW ANALYSIS PROGRAM visit our website and send for a quote.

Happy Holidays Everyone

Tuesday, November 16, 2010

TAX Calendar

Below is the Tax calendar

15 – Fourth quarter 2009 estimated tax due. Use Form 1040-ES.
1 – Deadline for employers to provide copies of Forms W-2 and 1099 for 2009 to employees.
16 – If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by February 15 to continue your exemption for another year.
1 – Deadline for farmers and fishermen who have a balance due on their taxes to file their 2009 individual income tax returns and pay the balance due without penalties.
15 – Deadline for 2009 corporate tax returns (Forms 1120, 1120-A, and 1120-S) or to request an extension using Form 7004.
15 – Deadline to file 2009 individual income tax returns (Form 1040, 1040A, or 1040EZ) and any taxes owed, or to file for an automatic 6-month extension.
15 – Last day to contribute to a traditional IRA, Roth IRA, or SEP-IRA for the 2009 tax year.
15 – First quarter 2010 estimated tax due. Use Form 1040-ES.
15 – Deadline to file 2009 trust tax returns (Form 1041) or to request an automatic extension.
15 – Deadline to file 2009 partnership tax returns (Form 1065) or to request an automatic extension.
15 – Deadline for U.S. citizens living abroad to file individual tax returns and pay any tax, interest, and penalties due, or to request a 4-month extension (Form 4868).
15 – Second quarter 2010 estimated tax due. Use Form 1040-ES.
15 – Third quarter 2010 estimated tax due. Use Form 1040-ES.
1 – Deadline for existing employers to establish a SIMPLE IRA plan.
15 – If you were given a 6-month extension to file your income tax return for 2009, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due.
15 – Final deadline to file 2009 partnership tax return if you were given a 6-month extension.