Deductibility of Meal and Entertainment Expenses

The concept of meal and entertainment expenses and the ability to deduct those expenses on a tax return is often a misunderstood topic. There are three categories the costs can fall into – and some of them can be deducted in full.  Don’t lose out on a deduction when all it takes is a little knowledge and planning to categorize them correctly.

Generally, meals can only be deducted, whether in full or partially, as business expenses if they are directly related to, or associated with, the active conduct of a trade or business.  They must be substantiated by adequate records which must include amount, time and place, business purpose and business relationship of people involved.  There must be a valid business purpose to the meal for it to be a deductible expense.  Once this test is established, the expense falls into one of three categories: 50% deductible, 100% deductible, or not deductible.

 50% Deductible

This is the most common category.  Examples of events that would be subject to the 50% limit are:

  • Meals with clients, customers, vendors or employees associated with a business discussion.
  • Meal expenses by an employee during a business trip and reimbursed to that employee.
  • Meals at a convention or seminar.
  • Ticket price for a sporting event associated with a business discussion.
  • Room rental for a dinner or cocktail party.

100% Deductible

Examples of business meals and entertainment expenses that are 100% deductible are:

  • Meal expenses for a company picnic or holiday party for the benefit of employees.
  • Office snacks such as coffee, soft drinks, bottled water, donuts and similar snacks or beverages provided to employees on the business premises.
  • Food made available to the public for free, usually as part of a promotional campaign.
  • Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer.  A good example of this is if you are providing meals to the employees who are working late, on weekends, or on call.
  • If the meals expense is included as taxable compensation to the employee and included on the W-2.
  • If a professional firm bills meal expenses separately when invoicing the client and is reimbursed by the client, the expenses are fully deductible.  However, if the expense is not separately stated, then those expenses are only 50% deductible.

Nondeductible meal expenses

Regrettably, some business meal and entertainment expenses are nondeductible and need to be categorized as such.  Examples include the following:

  • Club dues (country clubs, golf and athletic clubs).
  • Ticket price for sporting event that you do not attend.
  • Lunch with customer, client or employee without a business purpose / discussion.

In order to properly categorize your expenses and get the highest possible deduction allowance, set up three general ledger accounts for meals and entertainment: one for 50% deductible, one for the 100% deductible meals and one for nondeductible meals.  We are available to assist you with this and other areas to help you get the biggest allowable advantage on your tax returns.

Posted in Bookkeeping Tips, Business Tips, Expense Reduction Tips | Tagged , , | Leave a comment

Have You Been Hacked? How to Minimize Your Risk

Just about every day, we read in the news that another company has been hacked. You might have already been directly affected by the password thefts at LinkedIn last year or Evernote this year. Or you might have had your own social media account, email, website, network, or computer hacked. Worse, many of you have been hacked but don’t even know it.

So how can you minimize the damage and risk of hackers? Here are several tips, some familiar, some not so familiar. As you go through the list, check off the ones you’re already doing and make a list of new ideas to implement to protect your business and personal assets.

Signing Your Life Away

Your signature might look great in a graphic in your email signature line, your website, or your newsletter, but it’s a huge risk. You’re giving away your handwriting, and forgers can easily replicate, master your handwriting, and impersonate you. To reduce identity theft, don’t publish your real signature anywhere.

Money, Honey

Implement strong passwords on all of your financial accounts: banks, credit unions, PayPal, credit cards, and your accounting system. We know it’s painful, but do not use the same password for your financial accounts anywhere else, especially social media! If possible, use a different password for each account to reduce risk further.

What’s Your Password?

Here are some quick password tips:

• Do not use your name, your pet’s names or your kid’s names in your passwords. There’s just too much information available publicly to do that safely anymore.
• Mix up letters, numbers, capital letters, and special characters, if they are allowed.
• The longer, the more secure; most apps require at least 8 digits.
• Change passwords quarterly to be on the safe side.

Password Storage

Most apps that help you save time with passwords are NOT safe! Here’s what we do and don’t recommend:

DO:

  • Password-protect your computer, even though you don’t have to.
  • Keep a separate file of your passwords on your computer, but DO password-protect that file and make sure it is not shared with anyone on a network. Also name the file something totally unrelated like bio, letter, or goulash recipe; do not name it “passwords.doc!”
  • You can also keep a record of your passwords offline, but be sure to lock it up in a safe.
  • When you make file and disk backups, be sure those are locked up and password-protected too. They will no longer have your PC password to protect them.

DON’T

  • Don’t give in to your browser or any website when it asks to remember your user ID and password, especially for your financial accounts or client information. All of the major browsers have been hacked – Internet Explorer, Chrome, Firefox, and even Safari.

If you use password management applications, proceed with caution. Be sure you have properly vetted their security claims. Most of these are simply form fillers that are not safe.

Vulnerable Applications

Avoid leaving vulnerable PC ports open and unattended, including chat, messaging, FTP (file transfer protocol), Skype, webinars, Google hangouts, video sharing, and the like. It’s like having all the doors and windows unlocked in your house; an intruder has a lot of choices for easy entry. When you are on these more vulnerable connections, shut the others down, and close the applications you don’t need. Then logoff when you are done.

A Plug for Software

As soon as a hacker has found a new exploit, the software companies will learn about it and make an update available within days. The hacker community is tight; other hackers will look for software that is not updated and exploit the hack. Avoid the copycat hackers by staying on top of your software updates, not just your anti-virus, but also your Microsoft and other software updates. Doing this will eliminate a great deal of the risk out there.

New Users

If multiple team members need to access your software, consider setting up additional users rather than having one account. If one person gets hacked, the others will likely still have access and can react quicker to the intrusion.

Stay Safe Out There

How many of these are you already doing? Give yourself a reward, and then get busy implementing the rest so you can stay safe.

Posted in Business Tips, Management Tips | Leave a comment