In pursuit of a free lunch
Businesses are generally limited to deducting 50% of otherwise allowable
meal and entertainment (M&E) expenses, but there are several exceptions,
such as expenses:
- Treated as compensation to
employees,
- Excludible from employees’ income as
de minimis fringe benefits,
- Paid or incurred under a
reimbursement or similar arrangement in connection with the
performance of services, and
- For employee recreational or social
activities — for example, picnics and holiday parties.
Unfortunately, the cost of separately
identifying and reporting items that are 100% deductible can be
prohibitive. But if you spend a great deal on M&E expenses, it may pay
to do so.
And last year, in an effort to ease this accounting burden, the IRS
issued Revenue Procedure 2004-29. It allows you to use
statistical sampling methods to estimate the portion of M&E expenses
that are fully deductible.
Roth 401(k) offers a new way to save
At long last, the Roth 401(k) is ready for its debut. Enacted as part of
the Economic Growth and Tax Relief Reconciliation Act of 2001, the Roth
401(k) becomes operational in 2006.
If your plan is set up to accommodate a Roth 401(k), starting in 2006,
participants in a 401(k) or 403(b) plan may designate some, or all, of
their elective contributions as a Roth
contribution. Roth contributions will be taxed (not tax-deferred as in a
traditional 401(k)), but all qualified withdrawals will be tax free,
which means participants may never have to pay tax on growth in the
plans. Plus, there are no required distributions.
To have a qualifying Roth contribution program, your retirement plan
must establish a separate designated Roth account for each employee and
maintain separate recordkeeping for each account.
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Tax Tips
This section presents brief
notes on the Section 179 election, employment tax form
signatures, and using IRA funds for educational expenses.
Read more
Estate planning if you or
your spouse isn’t a citizen
Married couples can use a
number of tried and true techniques to shield their wealth
from estate and gift taxes. These include gifts and bequests
designed to take advantage of the unlimited marital
deduction, which allows you to transfer any amount of
property to your spouse free of estate or gift taxes.
There’s a catch: The marital deduction is available only if
the recipient is a U.S. citizen. So if you or your spouse is
a noncitizen, you’ll need to do some extra planning. This
article looks at strategies, such as using the gift tax
exclusion and exemption and creating a qualified domestic
trust.
Read more
Take care when mixing
business with pleasure
How to substantiate entertainment expenses
Entertainment and recreation
have always played an important role in business. And while
the IRS and courts scrutinize tax deductions for these
activities, they also recognize that business people conduct
legitimate business over lunch or on the golf course. The
scrutiny isn’t surprising. After all, entertainment is an
area that’s ripe for abuse. This article explains how
following the rules and paying close attention to
substantiation requirements will allow companies to
successfully mix business and pleasure without giving up the
tax benefits.
Read more
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Still sitting on the fence?
Picking the best retirement plan for your business
It’s common business knowledge that the key to getting,
and keeping, good employees is to offer a benefit
package they’ll appreciate. But you also want to make
sure that you — as the owner — get all the tax breaks
you’re entitled to.
Read more
Private foundations —
a plan for family giving
Once considered only for the very wealthy, private
foundations are now being established (and should be
considered) by more “upper-income” individuals. Private
foundations can provide both income tax and estate
planning benefits while enabling you, or your family, to
make meaningful contributions that affect the charities
and causes most dear to your heart.
Read more
AGI limitations on contribution
deductions
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Public charities |
Private foundations |
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Operating |
Nonoperating |
Cash and unappreciated
property |
50%* |
50% |
30% |
| Ordinary income property |
50% |
50% |
30% |
Appreciated capital
gain property |
30% |
30% |
20% |
*Under the Katrina Emergency Tax Relief
Act of 2005, 100% for cash contributions made Aug. 28 – Dec. 31, 2005
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