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April 2007
CLIENT NEWS
We are short
on client news this month (as in “none”). We’ve been busy
and you (our friends and clients) have not been helping out.
Come on, you must have something interesting going on that you
would like to share. Send news to
tpietras@bpscpas.com. If your company is sending out
press releases, send us a copy.
NEWS FROM
BP&S
April 17 Barbeque
What a great turnout on April
17—and not just people picking up returns on the last day.
Almost 90 people joined us for lunch. We are looking forward
to doing it again next year.
Looking for Experienced Auditors
Due to continued strong growth
in our audit and accounting practice, the Firm is looking for
an audit senior with two to four years of recent, high quality
audit experience. Compensation will be commensurate with
experience. If you are interested (or know of someone
who is interested), please e-mail your resume directly to Tom
Pietras at
tpietras@@bpscpas.com.
TECHNICAL ISSUES
Have to admit that we are “cheating”
a bit here. April has been very busy, so we dipped into
the archives for the following article. Questions about
business entertainment come up fairly often. This may
be new to you or it may be a refresher.
Skyboxes and opera seats: business
entertainment expense treatment
Entertaining
business clients and employees at sports events or arts performances
can be good for the bottom line; and tax deductible, too. Whether
to maintain contacts with existing customers, woo new business,
or reward your employees; footing the bill at the ball game
or hosting an evening at the theater can go a long way to generate
positive returns.
General rule
In
general, you can deduct ordinary and necessary expenses to entertain
a client, customer, or employee if the expenses are either directly
related or associated with your business. An "ordinary" expense
is one that is common and accepted in your trade, business,
or profession. For example, a contractor may have the ordinary
expense of taking clients to lunch to discuss the business deal.
A "necessary"
expense is one that is helpful and appropriate for your business.
However, an expense does not have to be required to be considered
"necessary." For example, the cost of fresh flowers, periodically
sent to a business contact's office, may help maintain your
professional network. Likewise, basketball tickets may be appropriate
for keeping business communication lines open.
"Directly-related" test
Ordinary
and necessary entertainment expenses must also be directly related
to, or associated with, your trade or business. To satisfy the
"directly-related" test, you must show that:
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The active conduct of business
was the entertainment's main purpose;
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You engaged in business with
the person during the entertainment period; and
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There was an expectation of garnering
specific business or income in the future.
You
do not have to spend more time on business than on entertainment,
but if business is only incidental, then the entertainment expenses
do not meet the "directly-related" test.
Entertainment
expenses are not directly related to business if you do not
attend the event with your client. In addition, costs are not
considered "directly-related" if the event is so distracting
that you are prevented from actively conducting business.
"Associated" test
Although
the theater or sporting events may be too riveting for continued
business talk, these activities may still qualify as deductible
business entertainment expenses. Even if they do not meet the
directly-related test, expenses may still be deductible as "associated"
with the active conduct of your trade or business if the expenses
are incurred either directly before, or after, a substantial
business discussion. A business presentation just before the
game, or a meeting right after the concert, can qualify the
recreational activities as business entertainment expenses.
Deductible amount
In
general, the deductible amount is 50 percent of un-reimbursed
entertainment expenses. Generally, you cannot deduct more than
the face value of an entertainment ticket, even if you paid
a higher price. Handling fees are not included in the amount
you can deduct. Deductions for sky boxes and other luxury seats
that are rented for more than one event are limited to the price
of regular, non-luxury seats (subject to the 50 percent rule).
Luxury seats are for "more than one event" if they are rented
for a series of games or performances.
Expenses
for non-business guests are not deductible as entertainment
expenses. The cost of the entire outing must be pro- rated if
it's difficult to separate the costs for business and non-business
guests. However, if a business contact's spouse attends the
event because it would be inconvenient not to, the cost for
the spouse's ticket is also a business expense.
If you need any further assistance in determining
how similar entertainment expenses may be deductible in your
specific situation, please do not hesitate to call this office
for assistance.
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