Chapter 6 11-12

Chapter 6 11-12 - ACCT 403 CHAPTER 6 SPRING 2012 BUSINESS...

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ACCT 403 CHAPTER 6 – SPRING 2012 BUSINESS EXPENSES I. Primary Business Expenses A. Meals and Entertainment 1. The entertainment must either be directly related or associated with the business. a. Directly related means that there must be active business discussion or take place in a business setting. 1. Examples 1-2, page 3. b. Associated with means that the entertainment precedes or follows a bona fide business discussion, and there is a clear business purpose. 1. Example 3, page 3. 2. Out-of town meal expenses are deductible if they qualify as travel expenses (part C below). 3. Cost of meals includes amounts spent for food, beverage, tax and tips. 4. Cost of entertainment includes amounts spent at night clubs, theater, sporting events, golf courses, and other recreational events. a. The amount for sporting tickets are limited to the face value of the tickets; therefore, box seats may not be fully deductible. 1. Examples 4-5, pages 4. b. The costs paid for other people are deductible if their presence serves a clear business purpose. 1. Example 6, page 4. 5. In general, no deduction is allowed for the cost for the use of entertainment facilities. a. Club membership dues are not deductible. b. 6. Deductions related to “reciprocal entertaining” are not allowed. a. Example 7, page 5. 7. Generally, only 50% of the costs of meal and entertainment expenses are deductible. Exceptions include the following: a. Employee picnics and Christmas parties. 1. Example 8, page 5. b. Employee expenses when reimbursed by employer.
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2 8. Documentation requirements. a. Receipt. b. Time and place. c. Business purpose. d. Individuals entertained and their business relationship. B. Automobile Expenses (See Figure 6.1, page 6) 1. Must be incurred in connection with the performance of services as an employee or as a self-employed individual. a. For example, commuting is not deductible. 2. There are two methods for calculating the auto expenses – standard mileage rate and business percentage of actual costs. 3. Question – How does one compute the business miles and business percentage? a. Maintenance of logs is highly recommended. b. Distance from home to primary business location is commuting miles, not business miles. c. If an employee has more than one job, he/she may deduct transportation expense from one job to another. If the employee goes home before going to an additional job, the mileage is limited to the distance between the two job sites. d. If traveling to a temporary work location, the business miles equal: 1. The total miles traveled if the temporary location is outside the taxpayer's principal job location; 2. The total miles traveled if the temporary location is within the taxpayer's principal job location and the taxpayer has at least one regular place of business other than the home; 3. The total miles traveled if the temporary location is within the taxpayer's principal job location and the taxpayer's home; if the home is his/her
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This note was uploaded on 02/22/2012 for the course ACCT 403 taught by Professor White during the Spring '11 term at South Carolina.

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Chapter 6 11-12 - ACCT 403 CHAPTER 6 SPRING 2012 BUSINESS...

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