ACTG 3036 n Federal Income Taxation Business Expenses
ACTG 3036 n Federal Income Taxation
Business Expenses Travel and Transportation n Entertainment n
Entertainment Expenses § 274(a)(1)(A) n Nondeductible unless done in connection with taxpayer’s trade or business and one of two tests met: u Directly related to the trade or business u Associated with the trade or business and directly preceding or following a substantial business discussion
Entertainment Expenses n Must meet all three of the following tests- Reg. § 1. 274 -2(c)(3) u More than a general expectation of deriving some income was expected u Business was actually discussed t It is presumed no business was transacted if taxpayer not present or there are substantial distractions u Principal character was business
Entertainment Facilities § 274(a)(1)(B) n Expenditures for facilities such as hunting lodges, yachts, etc are not deductible
Club Dues § 274(a)(3) n n Dues for social, athletic, golf, country and airline clubs not deductible u Reimbursed dues not includable in employee’s income if club used exclusively for business – Reg. § 1. 132 -5(s) t If only partially used for business, personal portion is taxable to employee Payment for other club expenses subject to general restrictions on entertainment expenses
Entertainment Expense Exceptions- § 274(e) n Certain expenses to not need to the tests of § 274(a) to be deductible u Food and beverages for employees furnished on employer’s business premises u Expenses taxable as compensation to recipient u Recreational expenses for employees and their families
Entertainment Expense Exceptions- § 274(e) n Certain expenses to not need to the tests of § 274(a) to be deductible u Expenses relating to shareholder, director and employee meetings u Items made available to the general public u Entertainment and meals sold to customers
Entertainment Expenses Partial Disallowance- § 274(n) n n Only 50% of expenses for meals and entertainment are deductible If employee is not reimbursed, the 50% cutback comes before the 2% floor on miscellaneous itemized deductions It the employee is reimbursed, the 50% limitation is imposed on the taxpayer making the reimbursement Entertainment covered by § 274(e) not subject to 50% cutback
Scalped Tickets § 274(l) n No deduction is allowed for any ticket to entertainment which exceeds face price of ticket u Exception: Charity sporting events- § 274(l)(1)(B) u Deduction for skyboxes limited to ticket cost- § 274(l)(2)
Business Gifts- § 274(b) Gifts to business associates that the taxpayer wishes to claim a tax deduction n Deduction limited to $ 25 per recipient per year n
Entertainment Expense Documentation- § 274(d) n Expenses covered by rules: u Travel u Entertainment u Gifts u Listed Property
Entertainment Expense Documentation- § 274(d) n n Documentation must list certain things: u Amount spent u Time u Place u Business Purpose of expense u Business relationship of people entertained Original receipts required for u Lodging u All expenses over $ 75 - Reg. § 1. 274 -5©
Expense Reimbursements Reg. § 1. 62 -2 Accountable Plan u No income to employee u No deduction by employee n Nonaccountable Plan u All reimbursements treated as gross income u All deductions itemized subject to 2% floor n
Accountable Plans-Reg. § 1. 62 -2(c) Excess reimbursements returned or reported as income n Substantiate expenses n
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