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March Opens Lower
March 2016 has gotten off to a slow start. Independent retailers are reporting their sales were down 2.58 percent compared to the same period in 2015. Customer counts, however, were up 3.29 percent. The discrepancy could be due to lower cost of food than a year ago, and perhaps customers putting fewer items in their baskets.
The Bureau of Labor Statistics released its February consumer price index report and it shows that food at home prices increased 0.2 percent during the month. This was the first monthly increase since September of 2015. Individual categories that showed increases were fruits/vegetables (+0.8 percent), nonalcoholic beverages (+0.6 percent), and cereal/bakery (+0.2 percent). Categories that decreased were meat/poultry/fish/eggs (-0.1 percent) and other (-0.1 percent). Dairy did not change in February.
Despite the monthly increase, food at home prices have declined 0.3 percent in the past 12 months.
The index for all items decreased 0.2 percent in February, dragged down by a precipitous drop in gas prices (-13 percent). All items have increased just one percent in the past 12 months.
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| Same Store Sales
% Change from last year
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Same Store Sales – Previous Months
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| BGBC Partners Tax Update: Holiday Expenses on Your Tax Returns
It’s hard to believe but last year’s holiday parties are almost three months ago! But now that we are in the middle of the 2016 tax return filing season, those holiday costs and other meal and entertainment expenses are being addressed on tax returns all across the country. So what are the rules for deducting these types of expenses? That is what we will explain in this segment of our tax update.
As early as 1961, President Kennedy proposed a full-scale attack on entertainment deductions by declaring that entertainment deductions must be “ordinary and necessary” business expenditures in order to be deductible. In 1978, President Carter urged that additional restrictions be imposed to eliminate taxpayer subsidies of the “three martini lunch” and proposed a 50% reduction in entertainment deductions. President Carter’s proposals were watered down to a disallowance of deductions for entertainment facilities (e.g., hunting lodges, swimming pools, hotel suites and yachts but not certain club dues).
A more sweeping assault on entertainment deductions occurred in 1986 when Congress limited most deductions for food, beverages and business entertainment to 80%. This fell to 50% in 1993.
Consequently, many store owners (and taxpayers in general) assume that meals and entertainment expenses are automatically subject to a 50% limitation. This is not necessarily so.
Case in point, that holiday party mentioned earlier is not subject to these limits. Holiday parties are 100% deductible. Likewise, summer outings or any store-sponsored outing for store employees as a whole and regardless of position or status. Food items made available to the public as samples or promotional materials are also not subject to the 50% limitations. Meals served to customers such as a deli in a grocery store are not limited nor are de minimis gifts such as holiday turkeys provided to employees.
Back to that three martini lunch, if you do have a legitimate business purpose, you can deduct a business lunch, as long as you document contemporaneously the name of the other party, the business relationship you have with the other party, the business purpose of the meal, the amount, and the time and place of the expense.
If you have an employee whose business entertainment expenses are fully substantiated and reimbursed under an accountable plan (i.e., in general, they are required to keep receipts and are paid only up to the amount of those receipts), you do not have to include these in your employee’s wages.
As you can see, meals and entertainment expenses can be more involved than at first glance. Therefore, consult a trusted C.P.A. so that those holiday parties can stay a fond memory and outside the grasp of a pesky IRS auditor.
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).
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| For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
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