Is Your Business Getting the Most out of it's Meals & Entertainment Expense?

We all know that entertaining such people as clients and suppliers, and even employees, can be crucial to the survival of a business. And, we've had no choice but to grudgingly accept the 50% deducitbility of such expenses. However, there is a chance you may be deducting 50% on meals that are completely, 100% deductible.

There are certain instances where meals provided to employees are actually 100% deductible. To take advantage of the 100% deduction of meals for employeess, your company will have to adjust your chart of accounts to accomodate for meals that are 50% deductible and meals that are 100% deducitble.

Here are the meal & entertainment expenses that are 100% deductible:

• Expenses (including the cost of related facilities) for recreational, social, or similar activites (e.g. Christmas party) that are primarily for the benefit of employees that are not highly compensated;
• Expenses directly related to business meetings of employees, stockholders, or directors;
• Expenses included in an employee's moving expenses that are paid or reimbursed by the employer;
• Expenses for on-site meals that an employer provides to an employee for the convenience of the employer (e.g. bank tellers or medical staff that don't have time to leave the premises for a meal). Note that the meals must be furnished on the employer's business premises;
• Expenses for meals that are excludable from an employee's gross income as a "de minimis" fringe benefit.

A "de minimis" fringe benefit is defined as "any property of service the value of which, after taking into account the frequency with which the employer provides similar fringes, is so small as to make accounting for it unreasonable or administratively impractical." Examples would be coffee, soft drinks, or snacks that an employer provides.

Taking advantage of these tax laws could result in an immediate tax savings for you and your company.  Be sure to educate the proper employees as to what constitutes a 50% vs. 100% deducitble meal. If you think any of this circumstances apply to your company, it may be worth the time to review last year's expenses.

Is Printing Your Own Cash the Answer?

Some communities are taking matters into their own hands during these financial times. While it's an interesting concept, I wouldn't be rushing out printing your own currency!

Struggling Towns Printing Their Own Cash

While this may be a fun gimmick for some restaurants and bars, or retailers, the bottom line is like losing at dominoes......  the loser is stuck with all the cash that can't be used any more.  While this may be the for innovation and reinvention, common sense does need to be a part of the equation!

The New College Tax Credit - There Are Big Changes!

With everyone tightening their belt these days and the air of uncertainty, it has becoming increasingly more difficult for parents to pay for their children's college education. The new American Opportunity Credit, which modifies the Hope Credit for 2009 and 2010, raises income phase-outs, the amount of the credit and adds required course materials as a qualified expense, helps to ease the burden.

One of the key features that really stands out is, that for the first time, the credit is partially a refundable credit. Previously, the credit was only available to the extent of your tax liability. For 2009 and 2010, 40% of the credit is refundable. With the maximum credit being $2,500, that means that up to $1,000 for each eligible student is refundable.

Other features of the credit are:

• Required course materials (such as books), also for the first time, qualify as an expense. 
• The maximum credit for each eligible student is $2,500. The credit is for 100% of the first $2,000 of qualified expenses, and 25% of the next $2,000. 
• The income phase out begins at $80,000 and completely out at $90,000 of modified adjusted gross income for single or head of household, and at $160,000 and $180,000 for taxpayers that are married filing joint.

Some of the things to watch for regarding the credit:

• Kiddie Tax - if the student has investment income that is, or may be, taxed at the parents rate are not eligible to have the credit refunded. The credit is available, but just not a refundable credit.
• If you file married filing separate, you cannot take the credit.
• And, it is not available for any student that has already completed their first four years of college. These students may still qualify for the Lifetime Learning Credit or the Tuition and Fees deduction.

If you would like further information, check out Publication 970.  Publication 970

Additional Deductions for Use with Standard Deduction

There are a couple instances where you are able to take additional deductions even if you use the standard deduction on your income tax return.

Additional Standard Deduction Amount for Real Estate Taxes:

• Anyone who utilizes the standard deduction and is an owner of real property (your home!) is entitled to an additional amount to their standard deduction that is equal to the lesser of the actual amount of the property taxes paid or $500/individual or $1,000/joint.

Additional Standard Deduction amount for State Sales & Excise Taxes on Motor Vehicles:

• If the standard deduction is taken, a person may still deduct the amount of state sales and excise paid on a NEW automobile purchased between February 17, 2009, and December 31, 2009, attributed to the first $49,500 of the purchase price. This additional deduction begins to be phased out for higher income taxpayers. For individuals, that is modified adjusted gross income (MAGI - is your adjusted gross income (AGI) in most instances) over $125,000, and $250,000 for married filing joint.

Additional Standard Deduction Amount for Casualty Losses Attributable to Federally Declared Disasters:

• An addition to the standard deduction is available for those in federally declared disaster areas except those in the Midwestern disaster area. The amount available is the taxpayers net disaster loss. Net disaster loss is the excess of personal casualty loss due to a federally declared disaster over personal casualty gains. Essentially, if your insurance didn't cover all of your losses, you may take that amount as as the additional deduction.

Reduce Your Taxes by Using Cost Segregation

Cost segregation is the process of identifying and separating personal property assets (desks, fixtures, landscaping, etc.) from real property (the actual building or structure) assets for tax purposes. A cost segregation study identifies and reclassifies these assets to shorten the depreciable life for taxation purposes, which could reduce your income tax liability. Applicable assets include a building’s non-structural elements, land improvements and indirect construction costs.



By using a cost segregation study with a new or remodeled structure, certain parts of the building may acutally be 5, 7, or 15 year property, as opposed to 39 year property (which is what the bulk of the building or structure will be). Things that need to be considered:

1. Can it be easily moved?


2. Is the property designed to remain in place?


3. How difficult or time consuming would it be to move the property?


4. Is the property constructed in a way that shows the intent to move it (floating dock vs. dock with concrete pilings)?


5. How much damage would be caused by the removal of the property?


6. How is the property attached (ceramic tile vs. wallpaper)?

Such items as lighting can be either personal property or considered part of the building. If the lighting provides basic illumination, then it is part of the building. If the lighting is merely decorative, then it it personal property. If it's decorative, but provides the only or main lighting, it is part of the building. As with most things, cost segregation has some very specific rules, but some items are subjective. If you are doing new construction or remodeling, please be sure to consult with a CPA or a cost segregation specialist - this is not a Do It Yourself project!

Here is the link to the first chapter to the IRS Cost Segregation Audit Techniques Guide - if you want some light reading to make you fall asleep or make your head spin!

http://www.irs.gov/businesses/article/0,,id=134122,00.html

Charitable Contributions - What YOU Need to Know!

We all know the basics of charitable contributions, but there are a few things you may not know.

• Contributions to organizations such as JAFF (Jax Assn of Firefighters) and FOP (Fraternal Order of Police) are NOT tax deductible contributions. These are great organizations and you should still support them.
• The IRS considers anything charged on a credit as a cash transaction. So, you can put a contribution on your credit card before midnight 12/31 and you will be able to deduct it on your 2009 tax return. Just be sure you pay off the card! If you end up paying interest on it for months, you'll defeat the purpose!
• Generally, deductions for making contributions to most non-profits can't exceed 50% of your Adjusted Gross Income (AGI). Gifts of appreciated property are limited to 30% of AGI. If these restrictions limit your deduction, the balance of the deduction carries over to the next year.
• If you get something in return for your contribution, your deduction is limited to the amount you donated in excess of the Fair Market Value (FMV) of the item. For example, if you "win" a gift certificate in a silent auction with a value of $50 for $40, you have no deduction. If you paid $60 for it, then you have a $10 deduction.
• We all love to support college atheltics! If you donate funds to a college or university, and the contribution gives you the right to buy tickets to athletic events, you can deduct 80% of the contribution.
• The topic I am asked about most often.... Volunteering time or professional services. The value of your services is not a deduction. You CAN, however, deduct travel costs or any other out of pocket expenses. You can deduct charitable miles at the rate of .14 cents/mile. If you... take any form of public transportation to perform volunteer services, you may deduct those costs.

Federal 2010 Mileage Rates

IRS has substantially lowered the standard mileage rate - from 55 cents to 50 cents for business use and from 24 cents to 16.5 cents for medical and moving miles. Charitable miles stays at 14 cents per mile. The charitable mileage is set by Congress, not by the IRS, which is why it's been... the same forever! Actually, the last time the charitable mileage was changed was in 1997!

First Time Home Buyer Credit for Military

Special benefits for the MILITARY serving outside the US in the Worker, Homeownership and Business Assistance Act of 2009. They have an additional year to purchase their principal residence - must purchase by 4/30/11, or have under contract by that date and close by 6/30/11. In many cases, the recapture may be waived as well. Check out the IRS website for more details.

http://www.irs.gov/newsroom/article/0,,id=215594,00.html?portlet=7