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December Week 2

   
The second week of December showed that independent retailers’ same store sales were down 1.82 percent compared to the same period in 2015. With three weeks left in December on which to report, there’s still some time to turn the month around before the year is out.

Same Store Sales        
% Change from last year

Same Store Sales – Previous Months

BGBC Partners, LLP Tax Update: Office Parties and Other Entertainment: How Much is Deductible?
This is the time of year for office parties and other entertainment. In this segment of our Tax Update we discuss the rules for deducting entertainment expenses provided for your employees.

In general, meals and entertainment expenses are only deductible if they are directly related to your trade or business. Furthermore, the deduction is generally limited to 50% of the total expense amount. However, there is an exception when the expenses are for recreation and entertainment provided to employees. This can include annual picnics, summer outings, and holiday parties just to name a few. Such entertainment expenses are not subject to the 50% rule and instead are 100% deductible.

Eligible entertainment expenses include such things as food, beverages, and the cost of renting facilities for the activity. This exception applies when the expense is primarily for the benefit of employees other than officers, shareholders, or other “highly compensated” employees. For purposes of this rule, an individual owning less than a 10% interest isn’t considered a shareholder.

This deduction does have documentation requirements, although they are less stringent than those applying to the typical meals & entertainment deduction. With the typical meals and entertainment deduction, you are required to document the amount, date, place, and business purpose of the meeting giving rise to the meal and entertainment expense. In the case of recreational expenses for employees, the required documentation is lessened to include substantiation that the expenses were for activities primarily for employees other than officers, shareholders, or other “highly compensated” employees.

It might be beneficial to review prior years’ tax returns to determine if you were unnecessarily subjecting qualified employee entertainment expenses to the 50% deduction. If so, the potential tax benefit should be measured against the costs of amending the return. In addition, your books should segregate these employee entertainment costs from meals and entertainment related to customers or potential customers (i.e. since the latter are subject to the 50% limitation) to make their identification easier.

Office parties provide a fun way to interact with your employees, which can lead to a stronger team and add value to your company. As we just covered, Uncle Sam helps underwrite some of the costs of these parties and other entertainment by way of a tax deduction. Remember to consult with your tax advisor to be sure that you are complying with the various rules on meals and entertainment costs to ensure that you are maximizing your deductions each year and not missing a requirement or two which may result you losing a deduction in an IRS audit.

BGBC Partners, LLP is a full service certified public accounting and business consulting practice.  

For more information, contact
Brad Bell, CPA
or Steve Reed, CPA/ABV/CFF at BGBC Partners, LLP (317-633-4700).
For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
8028 Ritchie Highway | Suite 212 | Pasadena, MD 21122


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