August, 2007

Meals and Entertainment, Per Diem Expenses

Business meals and entertainment are deductible only if they are:

  1. Directly Related or associated with the active conduct of your trade or business,
  2. not lavish or extravagant, and
  3. incurred while you or your employees are present at the meal.

You need to be able to prove this expense, if you’re audited, so after every meal, flip the receipt over and write down who you ate with and what business was discussed. Just because you and people from work like to eat out together, doesn’t make it deductible—you have to have a clear business purpose.

Meals and entertainment does not include paying for a “facility” like a hunting lodge or gym. Gym dues are not deductible, not even 50% deductible. Not even if you’re a model and you “need to keep up your appearance” for work. Really. Chambers of commerce are generally OK, I guess because by IRS definition, the Chamber of Commerce is not entertaining.

Unless you have something to do with the Department of Transportation, all your meals are only 50% deductible, including meals away from your “tax home” – the general area where you do business. There is nothing special about traveling that makes the meals 100% deductible. If you take one client to dinner it is the same 50% as when you take 7 clients to dinner. Bummer.

If you go down the street from your office at your lunch break to Wendy’s, even if you work before and after lunch, it probably is 0% deductible. Even if you needed to eat to continue to work.

Meal expenses for yourself alone while traveling for business can be deductible only if your trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties, and is away from your “tax home.” The deduction is limited to 50% of the expense paid (I guess they figure you were going to eat anyway). You need a receipt to prove the expense if you’re audited.

I imagine that many people lost receipts while traveling for business, so there is a standard meal allowance while traveling called the Per Diem method. The meal rate is different in different cities. Look in Publication 1542 or search at <> for CONUS in the US, and for foreign Per Diem rates (click on the green box). The dates on the tables tend to run October thru September, and they change. You need to check the tables for current information, but recently San Francisco , Las Vegas, Seattle and Chicago are $64/day, Oakland, Houston, and Santa Fe are $59, Paris is $156. If your city isn’t listed on the table, the rate is $39. Per Diem may also include a travel expense, but we’re only looking at meals in this issue. By using the Per Diem method, you don’t get away from any substantiation requirement, just the reporting is different.

Have I mentioned getting a receipt for meal deductions? To be an audit worthy substantiation, we need restaurant name and location, date, number of people served, who was there, and what business purpose the meal served. Oh, and the amount would be good too.

“Extravagant” mostly means inappropriately costly for the business purpose. Don’t go to Chez Panisse with your “client” on your anniversary.

Classes – Schedule C, Basic Payroll, How to Prepare the 1120S and The 'S' Corporation

Andy’s Preparing your own Schedule C class will be presented August 3rd 6-8 pm at:
Women’s Initiative San Francisco Office 1398 Valencia St. Accessible via BART 24th St. Station
To register, please contact contact at (415) 641-3470.

The C class will run at the Small Business Administration in SF on October 10th at 6. Click on to sign up.

Here’s the blurb:
Prepare your business taxes for ’06 and get ready for ‘07. Review what the IRS wants to know from you and how to report it on the Schedule C for your business. This is a class for business owners who need a basic understanding of their 1040 Schedule C tax forms. We’ll also talk about what to do with the numbers once you have them. We don’t guarantee you won’t get audited, but this class will make it less likely.

Also, in conjunction with the IRS and EDD, Andy's going to be doing some Basic Payroll seminars coming up in the near future. The next seminar will be August 1st in San Rafael at 120 North Redwood Drive, 2nd floor, Redwood Room August 1, 9 am – 3 pm. Reservations may be made at 866 873-6083 for the Federal/State Basic Payroll Tax Seminar, or on line at

The next Basic Payroll seminar will be October 24th at the same location in San Rafael. To sign up for the October seminar, please follow:

Andy will be back in Oakland November 7th downtown, and December 5th in Oakland again. These seminars have proven to be very popular.

How to Prepare the 1120S: Getting In and Staying In is a seminar for tax preparers on the nuts and bolts of preparing the annual tax return for “S” corporations. This will be a four hour presentation for a fee on November 3rd in Lafayette. We’re still working on a CPE sponsor, but please pencil in the date if you’re interested in learning how to prepare these returns or just want to review before the next tax season.

Andy will be doing a presentation on Why I love the “S” Corporation for the Solano/Napa EA Society Tuesday, January 22nd 2008 at 6 pm. More details will follow.

September 15th - October 15th Tax Deadlines

Corporate deadline for returns on extension, contrary to what I said last month IS September 15th for calendar year entities (thanks Duncan!). The deadline for personal tax returns on extension from 2006 is October 15th. The deadline is NOT the same for personal and corporate returns. Please don’t wait until the last minute—you’ll be filing late, which results in an additional penalty, plus it makes us frown. If we haven’t been contacting you to annoy you, we’re not worried about you, so you need to contact us. We try not to worry. Remember, some of us are going to be distracted in August/September with a new child.

Mid-Year Review?

We’re looking forward to working with you to get the best legal result on next year’s tax return, we have capacity and we’re looking for more clients. Would a mid-year review help you save taxes by the end of the year? It might. Are you expecting any changes to your financial picture? If consulted in advance, we can sometimes recommend ways to structure deals that are tax advantageous to you. It’s harder to do after the fact. If you are selling a house, you can save a lot on the capital gain if you’ve lived in it for two years; one year and 360 days has substantially different tax.

Your Questions in Future Newsletters

Feel free to e-mail questions you’d like answered. If we think it is a topic of general interest, we’ll include the answer in upcoming newsletters!