What's Your Meals and Entertainment Limit?

Have you ever entertained a client and heard the following: “Thanks for the dinner. I know it’s a write-off for you anyways!” Yes, this can be true, but that write-off has its limits and is not a dollar for dollar deduction.

A taxpayer's deduction for food or beverages or for business entertainment generally is limited to 50% of the otherwise qualifying expenses. Expenses subject to the 50% limit include not only the direct cost of the business entertainment (and meals consumed while away from home overnight on business), but also taxes, tips, and other related expenses (e.g., nightclub cover charges, and room rental for a cocktail party). The cost of transportation to and from the location of the business entertainment is, however, not subject to the 50% limit.

Ticket limitations. Generally, the deduction for a ticket to an entertainment event is limited to 50% of the ticket's face value, not 50% of its cost.
Thus, amounts in excess of face value paid to scalpers, ticket agencies or ticket brokers are nondeductible. Qualified charitable sports events are exempted from this face-value rule; in fact, the entire package cost of attending such events is exempted from the 50% limit on deductions. A sports event qualifies only if it is organized for the primary purpose of benefiting an exempt Code Sec. 501(c)(3) charity, the entire net proceeds are turned over to the charity, and the event uses volunteers to perform substantially all the event's work.

Skybox limitations. A taxpayer's deduction for a “skybox” or similar private luxury box leased for more than one sports event is limited to 50% of the sum of the face value of a non-luxury box seat ticket multiplied by the number of seats in the leased skybox. The excess cost of the skybox is nondeductible.

Certain meals can be exempt from the 50% limit. A number of expenses are exempted entirely from the 50% limit on deductions for meals and entertainment.

•Recreational expenses for employees. Expenses for recreational, social, or
similar activities (including facilities used for such purposes, such as health
clubs) are exempted if they are primarily for the benefit of employees, other than employees who are highly compensated individuals. This category covers items such as holiday meals, or an annual company picnic.

• Food and beverages excluded as de minimis fringes. Meals are not subject to the 50% limit if they are excludable from the recipient's income as a de minimis fringe benefit. The are three ways that meals may be excluded as de minimis fringes:
 Supper or supper money provided occasionally so that the employee can work overtime.
 Meals excluded from employees' income under Code Sec. 119 , i.e., provided on the employer's premises for the employer's convenience.
 An employer-operated eating facility is a de minimis fringe if it is located on or near the employer's business premises, and its revenue normally equals or exceeds its direct operating costs.

• Reimbursed meals consumed during job-related moves. An employer may fully deduct its reimbursement of meals consumed by an employee during a job-related move. The reimbursement is included in the employee's income and isn't deductible as a moving expense.

To conclude our discussion on meals and entertainment, join us again next week as we take a look at the documentation you should have on file to support your expenses and their subsequent deduction.

Happy Valentine’s Day!

brad@mcarthurco.com
704.544.8429

ATTENTION NC RESIDENTS!!!!!!!

As our Firm has a focus of clients in the state of North Carolina, we are going to take a break from our regularly scheduled action on Meals and Entertainment in order to push out some important information.

NC INDIVIDUAL, PARTNERSHIP, ESTATE AND TRUST INCOME TAX RETURNS DUE APRIL 18, 2011 -

The IRS has announced that individual taxpayers, nationwide, will have until Monday, April 18, 2011, to file their 2010 returns and pay any taxes due. Individuals get the extra time because Emancipation Day, a holiday in the District of Columbia, is observed this year on Friday, April 15, 2011. The April 18 deadline applies to any return or payment normally due on April 15. The IRS says that April 18, 2011 is also the deadline for requesting a tax filing extension and for making 2010 IRA contributions.

At the North Carolina Department of Revenue’s web site, they have announced that they will follow the April 18, 2011 extended filing date for certain returns and consider such returns and associated payments that would have been due on April 15 as timely if filed and paid by April 18, 2011.

The DOR says that the extended deadline applies to the following State forms and associated payments:

• 2010 State individual income tax returns, whether filed electronically or on paper
• First Quarter 2011 Individual Estimated Income Tax Payments
• Partnerships
• Estates and Trusts
• Applications for extension for any of the above tax forms

However, the NC Department of Revenue says that the April 18 extended deadline does not apply to the following:

• Corporate Estimated Tax Payments And Returns. The NC Department of Revenue says that the April 18, 2011 deadline does not apply to corporations that file franchise and corporate income tax returns due on April 15, 2011, or to first quarter 2011 corporate estimated income tax payments.

Certain Tax Breaks NOT adopted by the North Carolina legislature

Directly from our governing body, the NCACPA has notified its members the following:

“North Carolina has not adopted 2010 federal tax legislation (Small Business Jobs Act and the Tax Relief Act). Some of the commonly utilized provisions in these two bills for businesses are: bonus depreciation (both 50% and 100%); increasing Section 179 expense from $250,000 to $500,000; and increasing the immediate deduction for start-up costs from $5,000 to $10,000. Some of the commonly utilized provisions for individuals include higher education tuition deduction, teacher’s classroom deduction, and the direct gifting of IRA funds to a qualified charity.

North Carolina’s legislature will consider adopting some or all of the provisions listed above. Legislation is being prepared, but no official debate has begun. Members may decide to simply extend any impacted NC tax returns, or you may decide to file using current NC law, and amend later. Our state’s Department of Revenue is currently taking between five and six months to process amended returns, so this may also factor into your decision.”
As you file your NC taxes this year, please be mindful of the above information. Thanks and join us again next week as we continue discussing Meals and Entertainment.

brad@mcarthurco.com
704-544-8429