entertainment

Tax Extender Act of 2017 – Extension of Tax Credits

On February 7, 2018 the 115th Congress passed the Tax Extender Act of 2017. This Act addresses temporary or scheduled to expire tax breaks at the end of 2016 or 2017. All of these temporary or scheduled to expire tax breaks are referred to as “Tax Extenders” because Congress will review all or most of them to extend for the benefit of taxpayers. Congress enacts temporary tax provisions (usually a tax credit or deduction) to address a temporary need such as floods in Texas or Hurricanes in Florida. Some of these temporary benefits prove to be so beneficial to the economy they are made permanent. The enacted tax credits or deductions are scheduled to expire on a certain date, this is known as a “sunset”. Therefore, the Tax Extender Act of 2017 extended or made permanent tax deductions or credits that expire or “sunset” in 2016 or 2017.

Hooray for Tax Extender Bill!

The following are some of the Tax Extenders that have been extended:

  • Exclusion from gross income the discharge of qualified principal residence through 2017
  • Mortgage insurance treated as qualified residence interest through 2017 with limits
  • Deduction for qualified tuition and related expenses through 2017 with limits
  • Classification of race horses as 3-year property placed in service during 2017
  • 7-year depreciation for motorsports entertainment complexes placed in service during 2017
  • Extension of special expensing rules for certain film, television and theatrical productions through 2017 with limits
  • Extension of empowerment zone tax incentives through 2017
  • Extension of credit for nonbusiness energy property through 2017
  • Extension and modification of credit for residential energy property with limits
  • Extension of credit for new qualified fuel cell motor vehicles through 2017
  • Extension of credit for alternative fuel vehicle refueling property through 2017
  • Extension of credit for 2-wheeled plug-in electric vehicle through 2017
  • Extension of credit for energy-efficient new homes through 2017
  • Extension and phaseout of energy credit through 2022 with limits
  • Extension of energy efficient commercial buildings deduction through 2017
  • Individuals held harmless on improper levy on retirement plan
  • Modifications of user fee requirements for installment agreements
  • After 2017 attorney fees relating to awards to whistleblowers are deductible above the line
  • Modification of rules governing hardship distributions from retirement account
  • Tax home of certain citizens of the USA living abroad

 

These are some of the Tax Extenders that are applicable to many taxpayers. It is exciting to see that Congress is committed to preserving electric and biofuel motor vehicle credits. In this day with many taxpayers owning vehicles it is important to reduce all of our carbon foot prints in any way we can, to get a tax credit for doing so is a bonus!

Posted by Terranova & Associates LLC in Credit, deduction, Tax Tips, taxdeductions, 0 comments

Tax Cuts and Jobs Act decimates business entertainment expense in 2018

Last week we talked about business entertainment and the relevant substantiation requirements; this week we will focus on what is changing as a result of the Tax Cuts and Jobs Act starting January 1, 2018. Under the new Tax Cuts and Jobs Act, most entertainment expenses paid or incurred after January 1, 2018 is no longer deductible. Business entertainment expenses such as expenses incurred for business meetings  and expenses for an entertainment venue are no longer 50% deductible. There are a few exceptions, which mostly addresses employee related entertainment expenses.

Starting January 1, 2018, per the new Tax Cuts and Jobs Act, the only fully deductible entertainment expenses are:

  • Items that are treated as compensation to an employee-recipient
  • Recreational, social or similar activities and related facilities primarily for the benefit of employees who are not highly-compensated employees
  • Expenses for entertainment sold to customers
  • Items that are includible in the gross income of a non-employee recipient

The new Tax Cuts and Jobs Act substantially affects Internal Revenue Code Section 274 entertainment expenses, eliminating one of the more contentious areas of business expense deductions. Business owners should take additional care going forward to minimize, if not eliminate, their exposure of this particular issue.

Employer-provided meals received a stay of execution; amounts paid or incurred for meals provided to employees and their spouses and dependents for the employer’s convenience and on the employer’s business premises, as well as amounts considered de minimis fringe benefits remain a deductible expense until January 1, 2026.

On the bright side, expenses for food and beverage associated with operating a trade or business (meals consumed by employees on work travel) remain deductible.

As always, please be sure to maintain sufficient documentation to substantiate each business deduction.

 

Thomas D. Terranova, Jr., CPA, PFS, CITP is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Jit Lee Billings, CPA is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Terranova & Associates, LLC is located in Danvers and contact be contact at 978-774-7700 for consultations.

Posted by Terranova & Associates LLC in deduction, smallbusiness, Tax Tips, taxdeductions, 0 comments

Entertainment expense deduction & substantiation

Business entertainment

Many business owners and associates meet with clients at a restaurant or other entertainment venues with the purpose of conducting business. These entertainment expenses are generally allowed as deductions (limited to 50%), and are governed by the following Internal Revenue Code Sections (Prior to the New Tax Cuts and Jobs Act):

  • IRC 162(a): requiring that an item needed to be both ordinary and necessary in order to be deducted as a business expense
  • IRC 274: requiring that this entertainment item is properly substantiated
  • IRC 132(e): provides a De Minimis Fringe Exception for entertainment expenses incurred for the convenience of the employer to be consumed on the premises

In order to provide substantiation that entertainment expense is both ordinary and necessary, one must follow the rules outlines in IRC 274. Each entertainment item over $75 must have the following substantiation information in writing:

  • Amount and proof of payment
  • Time and place
  • Business purpose and benefit
  • Attendee(s) and their business relationship to the business

IRC 274 further provides an exception to the proof of payment requirement should entertainment expense be less than $75. However, all other elements of substantiation must still be maintained.

With regards to entertainment expenses incurred while travelling, IRC 274-5(j) allows the use of a “per diem method” for substantiation purposes. This is commonly known as the “Conus rates”, and the list of expenses for each major location within and without the United States is published and maintained by the U.S. General Services Administration. Proof of travel is required to use this substantiation method.

IRC 132(e) allows a 100% deduction for “any property or service, the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employers’ employees) so small as to make accounting for it unreasonably or administratively impracticable.

While full written substantiation is the best defense in the case of an audit, one should weigh both the costs of benefits of doing so.

In the event your substantiation documentation is unavailable through no fault of your own (acceptable examples of these circumstances include fire, flood or natural disaster), you have the right to “substantiate claimed deductions by reasonable construction of the expenditures or use” – this is otherwise known as the Cohan rule.

The use of the De Minimis Fringe Benefit rule (IRC 274(n)(2)(B)) was successful in a June 26, 2017 Tax Court Case brought by the owners of the Boston Bruins against the IRS. (GO BRUINS!!) This case revolved around deducting the entire cost of pregame meals for players and personnel at away games. While I won’t bore you the with details, suffice to say that the IRS closely examines the entertainment deduction and it behooves you to adhere to the substantiation requirements.

Enjoy your Entertainment Deduction!

 

 

Thomas D. Terranova, Jr., CPA, PFS, CITP is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Jit Lee Billings, CPA is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Terranova & Associates, LLC is located in Danvers and contact be contact at 978-774-7700 for consultations.

Posted by Terranova & Associates LLC in deduction, Tax Tips, taxdeductions, 0 comments