Month: August 2017

How a Highway Act Changes Tax Return Due Dates!

Highway Act Changes Business Return Due Dates:  On 7/31/15, President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236) (Highway Act) into law, which includes some significant changes to longstanding tax provisions. The Highway Act makes both partnership and S corporation returns due March 15th following the close of the calendar year (or 15th day of the third month following the close of a fiscal year) for years beginning after 12/31/15. The tax filing deadline for C corporations is changed to April 15th (or 15th day of the fourth month following the close of a fiscal year) for returns for years beginning after 12/31/15. However, for C corporations with a 6/30 year end, the changes are effective for years beginning after 12/31/25. The automatic extension period for these returns has also been adjusted. The Highway Act includes other tax compliance provisions

Locking your SSN #

Taxpayers May Self-lock Social Security Number (SSN):  The E-Verify program allows participating employers to electronically verify their employees’ employment authorization by comparing information from the new hire’s Form I-9 (Employment Eligibility Verification) with Department of Homeland Security (DHS) and Social Security Administration (SSA) records. Continue reading

Senate Finance Committee Passes Tax Extenders Bill

On Tuesday, July 21, the U.S. Senate Finance Committee voted 23-3 to approve semi-annual extensions of dozens of popular business tax credits and deductions. If ultimately approved by Congress, would extend more than 50 credits and deductions until the end of 2016, R&D Tax Credit being one of the credits extended.

“Today the Finance Committee advanced a bipartisan bill aimed to help both families and businesses,” said committee chairman Orrin Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., in a joint statement. “By allowing committee members to work their will, the committee succeeded in passing a number of widely supported tax provisions that will provide some certainty in the tax code for the next two years. We look forward to continuing to work together in a bipartisan fashion to enact tax extenders legislation.”

Generally, the bill would extend expired provisions for two years—retroactively from January 1, 2015, through December 31, 2016. The bill also includes modifications to some of the expired provisions, as well as a few revenue raising provisions.

Earlier this year, the House passed legislation to extend permanently and modify the research credit. The House also has passed legislation this year to extend permanently increased Section 179 expensing limits, certain S corporation provisions, certain charitable giving provisions, and the federal deduction for state and local sales taxes. House Ways and Means Chairman Paul Ryan (R-WI) recently said that he hopes to address other tax extenders in September.

The bill addresses substantially the same expired provisions that Congress extended through 2014, in late December 2014. Thus, for example, the bill generally would extend through 2016 the following (among other) provisions:

  • The research credit
  • Increased Section 179 “small business” expensing limitations.
  • Bonus depreciation
  • The exception under subpart F for active financing income
  • Look-through treatment of payments between related controlled foreign corporations (CFCs) under foreign personal holding company income rules
  • Reduced recognition period for S corporation “built-in gains” tax
  • Basis adjustment to stock of S corporations making charitable contributions of property

Left out of prior extender bill but reinstated in this new bill is the 10% credit for the purchase of electric motorcycles in 2015 and 2016. The credit, which is capped at $2,500 per qualifying vehicle, was in place prior to 2014, but was allowed to expire on December 31, 2013. The credit passed by the Finance Committee today would apply only to two-wheel, not three-wheel, electric vehicles.

Approval of tax extenders legislation by the Senate Finance Committee is a significant step toward renewing expired business and individual tax provisions, although the timing of further action by the full Senate on tax extenders this year remains uncertain. This leaves the spotlight on the House to act next by either adopting the Senate two-year approach or continuing to push for permanence for certain extenders. That process is likely to begin when Congress returns to Washington in the fall. The House and Senate also will need to reconcile their differing approaches to tax extender legislation.

For additional resources, please view:

  • The Finance Committee also provided summary descriptions of the provisions in the extenders bill on the Finance website.’s%20Modification.pdf

Making the most of M&E deductions

Meals and entertainment can be a sizable chunk of a company’s budget – but can also help reduce tax liability.

My favorite client, Joe, is in sales. He is finally getting a chance to use his box seats for the Cleveland Cavaliers to take a client to see the championship game. He called me up to ask what, if any, of the evening’s expenses he could deduct on the company’s tax return. When I asked how business is going, he mentioned his sales team has been performing so well this year he’s taking his top five salesmen and their families on a cruise. I surprised him when I told him not only will much of the cost of the game be deductible, but even that cruise might benefit his bottom line on his tax return.

As a general rule, taxpayers can deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on their trade or business – including expenses incurred wining and dining clients and rewarding non-highly compensated employees. These expenses can be significant for many taxpayers, and this often-overlooked source of deductions is worth investigating to significantly reduce overall tax liability.

Making the most of M&E deductions – Upstate Business Journal

The statutory scheme for meals and entertainment

To be deductible, the meals and entertainment (M&E) expense must be:

  1. an ordinary and necessary business expense,
  2. “directly related” or “associated with” the conduct of business, and
  3. substantiated by sufficient documentation.

Even if the expense is otherwise deductible, however, two additional limitations are imposed. First, the expense cannot be considered “lavish or extravagant.” Second, the total amount of the deduction is limited to 50 percent of the amount spent, unless the expense falls within an enumerated exception to this 50 percent limit.

Making the most of M&E deductions – Upstate Business Journal

What is “lavish or extravagant”?

The “lavish or extravagant” limitation leaves it open to IRS interpretation whether the expense is unreasonable. You can look at “lavish or extravagant” as “not ordinary and necessary.” Deductions are not disallowed simply by virtue of their amount or because the expense was incurred at a high-end restaurant or nightclub. Some of these types of expenses may not be lavish or extravagant under the circumstances. In Joe’s case, the cruise might seem lavish at first blush, but the IRS may actually allow the deduction depending upon its accounting treatment. If your client is a high-net-worth individual, a dinner at the most expensive restaurant in town is likely not extravagant.

On the other hand, circumstances may make an expense “extravagant” when you would not otherwise think so. The box seats for the Cavaliers game are excessive per the IRS, and the deductible amount would be limited to the cost of the highest non-box seat in the arena.

Making the most of M&E deductions – Upstate Business Journal

Getting around the 50 percent limitation

Once the hurdles to deductibility have been cleared, taxpayers should (but too often don’t) look to see whether they can avoid the 50 percent limitation on the deduction. Commonly invoked exceptions include M&E treated as compensation to the employee receiving them, expenses incurred in providing de minimis fringe benefits, recreational expenses for employees, items available to the public, and entertainment sold to customers. For example, portions of the cruise expense might be deductible if, subject to certain limitations, the cost of sending the employee on the cruise can be deducted if the company treats the cost to be wages to the employee.

The IRS regulations contain many other examples of expenses that are not subject to the 50 percent limitation. Among them are expenses incurred in holding company functions such as Christmas parties and small team-building events; costs incurred in maintaining recreational facilities such as a pool or golf club available to all employees; costs of promotional incentives given to the general public, such as wines provided to a wine store’s customers at a tasting; and meals provided to potential customers such as a real estate firm’s catering at a sales presentation. Taxpayers in the M&E business, such as restaurants, are not limited by the 50 percent deduction when the meals and entertainment are sold to customers. A restaurant may deduct the full cost of the food it purchases to serve, for instance.

Pitfalls to avoid

Failing to analyze the 50 percent limitation: Don’t take the M&E deduction without going through the analysis to determine if the 50 percent limitation applies. Over-application of the limit unnecessarily increases tax liability, but under-application of the limit opens the taxpayer to penalties.

Failing to maintain adequate substantiation: The IRS sets a high standard for the documentation required for M&E expenses. Often a taxpayer will know the amounts spent on meals and entertainment with sufficient certainty to prepare the tax return, but if audited, the documentation must stand up to IRS scrutiny. Failure to meet the substantiation requirements will render the deduction disallowed, opening the taxpayer to penalties. For example, regulations require that for any expense over $75, the taxpayer maintain records of:

  • The amount and description of each individual expenditure
  • The time and place it was incurred
  • The business purpose of the activity (including the benefit expected from the activity and the nature of any business discussion occurring at the activity)
  • The business relationship of the individuals entertained.

Unacceptably lavish or extravagant expenses: As noted above, “lavish or extravagant” is subject to IRS interpretation. A taxpayer will have to employ common sense – if the extravagance seems out of proportion to the nature of the business, the taxpayer should carefully weigh the reasonableness of the deduction.

It’s worth it

M&E expenses can take up a significant chunk of a company’s budget. While the substantiation requirement may seem administratively burdensome, in truth it can be overcome through a recordkeeping process that makes it routine to keep the required information. It is worth the trouble, as the deduction can have a significant positive impact on tax liability

This article was first published in Upstate Business Journal, on June 18, 2015.  Site:

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