Category Archives: Blog

Meal, Travel and Entertainment Expenses: Know What’s Deductible and Properly Substantiate

September 18, 2019

When owners, managers and salespeople attend trade shows, call on customers or evaluate suppliers, they may incur meal, travel and entertainment expenses. Many of these expenses may be deductible if they’re properly substantiated, but some of the rules have changed under the Tax Cuts and Jobs Act (TCJA).

Entertainment Expenses No Longer Deductible

“Entertainment” expenses used to often be lumped in with meal and travel expenses, but the rules for entertainment expenses have changed dramatically under the TCJA. Specifically, it disallows deductions for most business-related entertainment expenses, including the cost of facilities used to entertain customers.

Examples of nondeductible expenses under the TCJA include:

• Tickets to sporting events,
• License fees for stadium or arena seating rights,
• Private boxes at sporting events,
• Theater tickets,
• Golf club dues and greens fees,
• Company golf outings for customers, and
• Hunting, fishing, and sailing outings.

Some business-related entertainment expenses may still be deductible, but only in very limited circumstances (such as when entertainment is presented at an event open to the public).

Keep Detailed Records

Business meal and travel expenses are still deductible if they qualify as legitimate business expenses, though the deduction for meal expenses continues to be limited to 50% in most cases.

You must keep detailed records to substantiate any business expense. But it’s especially important for meal and travel expenses. Why? These expenses are IRS hot buttons, so those records are likely to be scrutinized if you’re audited.

Proper substantiation includes these details about the expense:

• The amount,
• The time and place, and
• The business purpose.

The IRS allows recordkeeping shortcuts under certain circumstances. For example, a business owner may opt to use the standard mileage rate, as established by the IRS for a given tax year, in lieu of substantiating actual auto expenses. In 2019, the standard mileage rate is 58 cents per mile for business travel. In addition, if you drive the same route consistently, you may be able to use an accurate record for part of the year to show your business mileage for the whole year.

If you reimburse employees for meal and travel expenses, make sure they’re complying with all the rules and enforce a policy that requires timely expense report submission. It’s almost impossible to re-create expense logs at year end or to wait until the IRS sends a deficiency notice.

Review Policies and Procedures

If you haven’t done so already, it’s important to assess your company’s expense allowance policies to determine if the TCJA provisions warrant changes — especially for entertainment expenses.

 

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Social Security Benefits: When’s the Right Time to Start?

August 24, 2019

As you approach retirement age, it’s important to take inventory of your savings and map out a strategy for managing your retirement income. A key component of this strategy is selecting the right time to begin collecting Social Security benefits. You have the option of starting benefits as early as age 62 or as late as age 70 and, depending on your circumstances, your choice will have significant financial and tax implications. Here are some factors to consider in determining when to pull the trigger.

What’s Your “Full” Retirement Age?

Full retirement age (FRA) — the age at which you become eligible for your full Social Security benefit — is based on your year of birth. For example, if you were born between 1943 and 1954, your FRA is 66, and if you were born in 1960 or later, it’s 67. For those born from 1955 to 1959, the FRA falls somewhere between 66 and 67.

How Much is Your Monthly Benefit?

Your monthly benefit is based on your earnings history and your age when you begin collecting benefits. For example, a person with the maximum level of earnings who begins collecting benefits in 2019 at age 66 will receive an initial monthly benefit of $2,861. You can project your benefits by setting up an account with the Social Security Administration at www.ssa.gov. In addition to showing your earning history and expected benefits, the site offers several calculators you can use to see how your benefits would be affected by various scenarios.

If you begin collecting benefits before reaching FRA, they’ll be reduced by up to 30%. If you postpone benefits past FRA, they’ll increase by 8% each year, up to a maximum of 32%.

Will You Outlive Your Life Expectancy?

Once you start collecting Social Security benefits, they continue at the same rate (with cost-of-living adjustments) for the rest of your life. Assuming you don’t need your Social Security benefits right away to fund your living expenses, it’s usually preferable to delay these benefits. Unless you have health concerns that may prevent you from reaching your statistical life expectancy, waiting until FRA or later is the best way to maximize your lifetime benefits.

Are You Still Working?

If you’re thinking about taking Social Security benefits early and you’re still working, keep in mind that your benefits will be reduced by $1 for every $2 you earn above a specified threshold ($17,640 in 2019). And, in the year you reach FRA, they will be reduced by $1 for every $3 you earn above a separate threshold ($49,920 in 2019) up until the month you reach FRA.

These benefits aren’t permanently lost; they’re merely deferred. Your benefits at FRA will be increased to reflect benefits withheld on account of earlier earnings. But it’s important to take this treatment into account as you weigh the pros and cons of taking early benefits.

What Are Your Other Sources of Income?

It’s helpful to think of Social Security as an investment. For example, delaying benefits beyond FRA to take advantage of higher rates is the equivalent of making an investment with a guaranteed 8% return. If you anticipate lower returns on your other retirement savings, you may be better off using those vehicles to fund your living expenses and allowing your social Security benefits to continue growing. On the other hand, if your other savings are likely to yield returns higher than 8%, it may pay to do the reverse.

Other income may also affect the taxability of Social Security benefits. If your income — defined as adjusted gross income plus tax-exempt interest and any excluded foreign income plus half of your Social Security benefits — exceeds certain thresholds, then a portion of your Social Security benefits are taxable. In 2019, taxpayers with income between $25,000 and $34,000 ($32,000 and $44,000 for joint filers) are subject to tax on up to 50% of their benefits. And those whose income exceeds $34,000 ($44,000 for joint filers) are subject to tax on up to 85% of their benefits.

A Complex Decision

Timing Social Security benefits is a complex decision and the factors discussed above are just a few of the ones you’ll need to consider in determining when to begin collecting. Although not discussed in this post, the process is even more complex for married couples, especially when spousal or survivor benefits are involved. For more information about how to make this determination or about Social Security in general, please contact us.

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2019 – 2020 Tax Planning Guide

August 13, 2019

Do your tax strategies need a refresh? Many taxpayers faced some surprises when they filed their 2018 income tax return because of the extensive tax law changes that generally went into effect last year. To save the most on your 2019 taxes, you need to plan carefully and take advantage of all deductions, credits and other breaks that current tax law allows. This is exactly what our 2019 – 2020 Tax Planning Guide can help you do. Take a look through the guide then contact us to talk about ways to lighten your tax burden and better achieve your financial objectives.

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