As many of you know, a business can generally deduct 50% of entertainment and meal expenses that either follow or precede a substantial business discussion with a client. If a client visits from a distant location, the entertainment may take place the day before or after the meeting.
Strategy: Host a house party within the time restraints. The cost of home entertainment attributable to your business guests is deductible even if you never actually discuss business during the get together. For this purpose, business guests may include your client, his or her associates, you and your employees and everyone’s spouses.
Tip: If you throw a holiday bash for all employees, you can deduct 100% of the cost, regardless of the location of the party. You must however include the entire workforce.
Thursday, December 8, 2011
Tip on Gold Investing
As a hedge to the stock market volatility, some investors are turning to gold and other precious metals. When you sell gold, you must report the difference between the sales price and your basis as a capital gain or loss. If you held the gold for more than a year, any gain is treated as a long-term gain. The federal income tax rate on long-term gains from precious metals is 28%, not 15%!! By using retirement plan funds instead of personal funds for gold investments, you can dodge a tax disaster. For example, gold coins that are minted by the U.S. government or one of the states, and some other gold coins of sufficient purity, can be held by IRAs. This is an exception to the general rule that prohibits IRA investments in coins and other collectibles.
Here are some ways to invest in gold:
• Gold bars or bullion
• Gold certificates
• Gold coins
• Gold stocks and mutual funds
Tip: You might swap precious metals in a like kind exchange at year-end. There is no current tax on the deal, but a tax loss is allowed for the difference. (The swap is actually a simultaneous sale and purchase.)
Here are some ways to invest in gold:
• Gold bars or bullion
• Gold certificates
• Gold coins
• Gold stocks and mutual funds
Tip: You might swap precious metals in a like kind exchange at year-end. There is no current tax on the deal, but a tax loss is allowed for the difference. (The swap is actually a simultaneous sale and purchase.)
Sales Tax Deduction Available for 2011 Tax Returns
Our Buchbinder Tunick & Co. November Online Advisor just came out with some information regarding the "Sales Tax Deduction" now available for 2011 tax returns.
WHAT YOU SHOULD KNOW:
MAKE THE RIGHT PRICING DECISION - In business, making pricing decisions is always tough - and even more so when the economy is slow and sales are slipping.
CHOOSING YOUR EXECUTOR: A CRITICAL ESTATE PLANNING DECISION - An executor is the person or legal entity that you appoint in your will to settle your estate after your death.
To learn more click on link for entire article...
WHAT YOU SHOULD KNOW:
MAKE THE RIGHT PRICING DECISION - In business, making pricing decisions is always tough - and even more so when the economy is slow and sales are slipping.
CHOOSING YOUR EXECUTOR: A CRITICAL ESTATE PLANNING DECISION - An executor is the person or legal entity that you appoint in your will to settle your estate after your death.
To learn more click on link for entire article...
Friday, April 29, 2011
How do your clients protect themselves from fraud?
An example: The executive director of a service fulfillment company insists on using high quality paper for surveys, and demands control of the ordering process. This allows the executive to set up a false vendor, pay exorbitant prices for inferior paper, and then receive "loans" back from the vendor. If this was your client, would they be able to identify the fraud and properly gather evidence against the perpetrator?
Studies show that, on average, organizations lose 5% of their gross revenue to fraud. Our forensic specialists, through seminars and consultation, teach how to understand fraud and how to implement internal controls to avoid it. We also offer the expertise to uncover fraud and gather evidence.
Fighting fraud requires a clear comprehension of fraud theory. This includes understanding the Fraud Triangle: Pressure, Opportunity, and Rationalization-elements that fraud theory asserts must exist for an employee to commit fraud. It also requires proficiency in gathering evidence: seeking accounting irregularities and analytical anomalies, and compiling notes from properly conducted interviews, properly prepared and signed statements, and forensically acceptable electronic media images.
In our November 2010 Forensic Accounting Seminar, our team of specialists explored this case, teasing out the factors that allowed the fraud to take place, the investigation that revealed the extent of the fraud, and the evidence that was gathered.
In this case, another employee discovered the fraud by questioning the executive's insistence on high-quality paper and noticing a suspicious address for the vendor. The company took the correct steps to investigate: putting the executive on paid leave, interviewing employees and vendors, and creating legally acceptable disk images. After accounting for most of the fraud, they interviewed the executive, obtained a statement, notified law enforcement, and began civil proceedings. Building the case from the ground up facilitated both the civil and criminal cases.
With appropriate controls in place, organizations can minimize their risk for this kind of fraud and lessen the damage if it occurs. We look forward to opportunities to work with you in the future to explore ways to best protect your clients.
Studies show that, on average, organizations lose 5% of their gross revenue to fraud. Our forensic specialists, through seminars and consultation, teach how to understand fraud and how to implement internal controls to avoid it. We also offer the expertise to uncover fraud and gather evidence.
Fighting fraud requires a clear comprehension of fraud theory. This includes understanding the Fraud Triangle: Pressure, Opportunity, and Rationalization-elements that fraud theory asserts must exist for an employee to commit fraud. It also requires proficiency in gathering evidence: seeking accounting irregularities and analytical anomalies, and compiling notes from properly conducted interviews, properly prepared and signed statements, and forensically acceptable electronic media images.
In our November 2010 Forensic Accounting Seminar, our team of specialists explored this case, teasing out the factors that allowed the fraud to take place, the investigation that revealed the extent of the fraud, and the evidence that was gathered.
In this case, another employee discovered the fraud by questioning the executive's insistence on high-quality paper and noticing a suspicious address for the vendor. The company took the correct steps to investigate: putting the executive on paid leave, interviewing employees and vendors, and creating legally acceptable disk images. After accounting for most of the fraud, they interviewed the executive, obtained a statement, notified law enforcement, and began civil proceedings. Building the case from the ground up facilitated both the civil and criminal cases.
With appropriate controls in place, organizations can minimize their risk for this kind of fraud and lessen the damage if it occurs. We look forward to opportunities to work with you in the future to explore ways to best protect your clients.
Tuesday, April 19, 2011
Deductibility of Skybox Rentals
I would like to review briefly the tax rules for deducting the expenses of renting a skybox or other private luxury box at a sporting event. Skybox rentals are subject to the general business-related entertainment expense rules as well as rules specific to skybox rentals.
In general, entertainment expenses are deductible if they are either “directly related to” or “associated with” the active conduct of your trade or business or investment activities. The direct relationship test is the harder of the two to meet. It requires an active business discussion during the entertainment event aimed at getting immediate revenue (as opposed to generalized good relations).
Accordingly, the “associated with” test is more likely to apply in the case of a skybox rental. To qualify under this test, you only need to have engaged in a substantial and bona fide business discussion before or after the entertainment event. If the discussion and entertainment event occur on the same day, the test is passed. If they are on different days, it may be more difficult to link the two, and the particular facts and circumstances involved will have to be looked at, e.g., whether a business client is from out of town, the length of the business meetings, etc.
In general, qualifying entertainment expenses are only 50% deductible. That is, if you spend $300 to entertain a client, the deduction is limited to 50% of your cost, or $150.
Special rules also apply for meals: they aren't deductible to the extent their cost is “lavish or extravagant” under the circumstances, and either you (or an employee of yours) must be present at the meal for the expense to qualify.
In addition, another limitation applies to the rental of a skybox or other private luxury box if the box is leased for more than one event. In that case, the deduction can only be based on the value of nonluxury box seats for the same event. For example, say you rent a 10-seat skybox at a stadium for $3,000 for three ballgames, where a nonluxury box seat costs $20. Ten seats times $20 for three events totals $600. Then, applying the general 50% limitation, the deduction would be $300, if the skybox was used for each event for entertainment “directly related to” or “associated with” the active conduct of your trade or business.
In determining whether the skybox rental is for more than one event, each game or other performance is counted as one event. Thus, a single lease for three or four World Series games is a lease for more than one event. On the other hand, two or more separate leases for the same event would be treated as one. That is, if three skyboxes are rented for a single game, the three leases would be treated as one, so the lease wouldn't be for more than one event. Additionally, if separate charges are incurred for food and beverages consumed in the skybox, these are deductible separately under the regular rules for such expenses rather than under the skybox limits.
In general, entertainment expenses are deductible if they are either “directly related to” or “associated with” the active conduct of your trade or business or investment activities. The direct relationship test is the harder of the two to meet. It requires an active business discussion during the entertainment event aimed at getting immediate revenue (as opposed to generalized good relations).
Accordingly, the “associated with” test is more likely to apply in the case of a skybox rental. To qualify under this test, you only need to have engaged in a substantial and bona fide business discussion before or after the entertainment event. If the discussion and entertainment event occur on the same day, the test is passed. If they are on different days, it may be more difficult to link the two, and the particular facts and circumstances involved will have to be looked at, e.g., whether a business client is from out of town, the length of the business meetings, etc.
In general, qualifying entertainment expenses are only 50% deductible. That is, if you spend $300 to entertain a client, the deduction is limited to 50% of your cost, or $150.
Special rules also apply for meals: they aren't deductible to the extent their cost is “lavish or extravagant” under the circumstances, and either you (or an employee of yours) must be present at the meal for the expense to qualify.
In addition, another limitation applies to the rental of a skybox or other private luxury box if the box is leased for more than one event. In that case, the deduction can only be based on the value of nonluxury box seats for the same event. For example, say you rent a 10-seat skybox at a stadium for $3,000 for three ballgames, where a nonluxury box seat costs $20. Ten seats times $20 for three events totals $600. Then, applying the general 50% limitation, the deduction would be $300, if the skybox was used for each event for entertainment “directly related to” or “associated with” the active conduct of your trade or business.
In determining whether the skybox rental is for more than one event, each game or other performance is counted as one event. Thus, a single lease for three or four World Series games is a lease for more than one event. On the other hand, two or more separate leases for the same event would be treated as one. That is, if three skyboxes are rented for a single game, the three leases would be treated as one, so the lease wouldn't be for more than one event. Additionally, if separate charges are incurred for food and beverages consumed in the skybox, these are deductible separately under the regular rules for such expenses rather than under the skybox limits.
Tuesday, August 31, 2010
5 Ways to Milk Preferred Tax Rates... Before Bush Tax Cuts Disappear
The end of the Bush tax cuts may just be a reality. Those rock bottom rates for long-term capital gains and qualified dividends are set to expire after 2010. Even if Congress extends the Bush cuts, they may limit the benefit for high-income earners. Here are a few things to consider:
Cash in your stock winners before 2011. If you wait until 2011, you generally will have to pay 5% more on long-term capital gains.
Harvest your stock losers after 2010. On the flip side, losses realized in 2011 may offset capital gains that will be taxed at higher rates.
Roll over or sell “small business” stock. If you own qualified small business stock, you can avoid tax on a sale by rolling over the proceeds into other QSBS stock within 60 days. Alternatively, you can exclude tax on 50% of the gain from the sale of QSBS in 2010 or 2011 , but the capital gain rate is 28%.
Take dividends in 2010. There is a urgent tax incentive to pile up dividends this year. If it makes sense, invest in stock a few months (now may be a good time) before dividends are scheduled to be paid. If you own a closely held corporation or a personal holding company, now may be the time to pay dividends.
Pass on the installment sale tax break. If it makes sense, you can elect out of installment sale treatment and have the entire gain taxed at 15% in 2010. Remember, this will accelerate your tax liability for both federal and state tax purposes.
Cash in your stock winners before 2011. If you wait until 2011, you generally will have to pay 5% more on long-term capital gains.
Harvest your stock losers after 2010. On the flip side, losses realized in 2011 may offset capital gains that will be taxed at higher rates.
Roll over or sell “small business” stock. If you own qualified small business stock, you can avoid tax on a sale by rolling over the proceeds into other QSBS stock within 60 days. Alternatively, you can exclude tax on 50% of the gain from the sale of QSBS in 2010 or 2011 , but the capital gain rate is 28%.
Take dividends in 2010. There is a urgent tax incentive to pile up dividends this year. If it makes sense, invest in stock a few months (now may be a good time) before dividends are scheduled to be paid. If you own a closely held corporation or a personal holding company, now may be the time to pay dividends.
Pass on the installment sale tax break. If it makes sense, you can elect out of installment sale treatment and have the entire gain taxed at 15% in 2010. Remember, this will accelerate your tax liability for both federal and state tax purposes.
Monday, August 16, 2010
S Corporation Tax Reduction Strategies
You may be receiving several types of payments from your S corporation, including a salary, rental payments from leasing real estate to the corporation, and a portion of the S corporation's net income. Since even minor fluctuations in these payment categories can produce differing tax results, we have the following ideas for saving taxes when extracting S corporation cash.
Income Shifting
S shareholders often attempt to minimize their compensation to increase the pass-through income to other owners (typically children in a lower tax bracket. Clearly, an owner rendering significant services to the corporation cannot unreasonably reduce salary to increase income to other shareholders. However, reasonable adjustments may be made with this objective in mind.
Reducing Compensation
Wages paid to an S corporation shareholder-employee are subject to payroll taxes. However, pass-through S corporation income is not. Thus, shareholder-employees may be able to reduce their payroll tax liability by minimizing salaries to receive additional pass-through income.
The IRS is aware of this strategy and has successfully fought it in several court cases. In some cases, the corporation issued no compensation to the key employee providing virtually all of the services the corporation sold. Instead, the shareholder-employee took corporate distributions without incurring payroll taxes. The courts recharacterized the distributions as compensation and imposed payroll taxes. Despite these IRS victories a shareholder's salary may be adjusted to the lower end of a reasonable range, especially when services are not the primary income-producing activity of the corporation.
Generating Rental Income
It is generally beneficial for an owner to rent real estate to the S corporation because any resulting net rental income is exempt from payroll taxes. But the arrangement must be reasonable because the IRS has ample authority to recharacterize rent payments as compensation or dividends to the extent they exceed market rates. S corporation shareholders using portions of their homes to perform services for the corporation (or to store corporate inventory) may lease space to the corporation. Deductions are not available for this use, but the rent is exempt from payroll taxes.
S corporation shareholders can often choose how to structure funds extracted from the corporation. While compensation and rental amounts must be reasonable, shareholders' tax results can often be improved. To discuss how S corporation distribution strategies can improve your tax situation, please give me a call.
Income Shifting
S shareholders often attempt to minimize their compensation to increase the pass-through income to other owners (typically children in a lower tax bracket. Clearly, an owner rendering significant services to the corporation cannot unreasonably reduce salary to increase income to other shareholders. However, reasonable adjustments may be made with this objective in mind.
Reducing Compensation
Wages paid to an S corporation shareholder-employee are subject to payroll taxes. However, pass-through S corporation income is not. Thus, shareholder-employees may be able to reduce their payroll tax liability by minimizing salaries to receive additional pass-through income.
The IRS is aware of this strategy and has successfully fought it in several court cases. In some cases, the corporation issued no compensation to the key employee providing virtually all of the services the corporation sold. Instead, the shareholder-employee took corporate distributions without incurring payroll taxes. The courts recharacterized the distributions as compensation and imposed payroll taxes. Despite these IRS victories a shareholder's salary may be adjusted to the lower end of a reasonable range, especially when services are not the primary income-producing activity of the corporation.
Generating Rental Income
It is generally beneficial for an owner to rent real estate to the S corporation because any resulting net rental income is exempt from payroll taxes. But the arrangement must be reasonable because the IRS has ample authority to recharacterize rent payments as compensation or dividends to the extent they exceed market rates. S corporation shareholders using portions of their homes to perform services for the corporation (or to store corporate inventory) may lease space to the corporation. Deductions are not available for this use, but the rent is exempt from payroll taxes.
S corporation shareholders can often choose how to structure funds extracted from the corporation. While compensation and rental amounts must be reasonable, shareholders' tax results can often be improved. To discuss how S corporation distribution strategies can improve your tax situation, please give me a call.
Subscribe to:
Posts (Atom)