Back with an Equation

Yes, I am still alive.

I apologize profusely, for my absence.  I have been ridiculously busy (ya’ know, working full time, raising 3 kids, going to MI for my brother’s wedding, to name a few.)

I did manage to write a blog…for my sister…

Lot of good it did on this blog though.

But alas, I am back and full of ideas.

Today is Tuesday, which means is Tax Tip day.

Believe it or not, I’m running out of tax ideas.  But this one hit me as I was walking in this morning, pondering the day that lie before me.

I love food.

No kidding – I have a day on my blog dedicated to food.  Has nothing to do with debt – well, you maybe could tie it together if you eat out a lot.  And you don’t usually get good food while getting out of debt.  (Think Beans & Rice!!!)

I also love the self-employed.

They keep this country going.  I envy their flexibility, but at times, am ever so thankful for the steady paycheck.

I also love algebra.  (Side note – I am a bit of a math geek, but not extreme.  I still had to be tutored weekly through Quantitative Methods.  Just thinking about that class makes me throw up a little bit in my mouth.)

So, here’s an equation.

Food + the Self-Employed = x

Alright, I’ll solve it for you.

X = a heck of tax mess if you’re not careful

Meals & Entertainment is a line on the tax return and those expenses are deductible under current tax law.  (Up to 50% to get technical.)

But too many self employed individuals see this line and think every biscuit, every taco, and fry they grab while “on the clock” goes on this line.

Not so my friend.

This line is for meals for yourself if KEY PHRASE: away from home.  Meaning overnight or out of your general area.  Even if you don’t necessarily stay overnight, this could still apply if you are out of your metropolitan area.

And this is for entertaining.  This could be meals, renting a facility, even golf.  KEY PHRASE: if you engaged in business directly before or after the event. 

My one request is not to go buck-wild with this.  Trust me on this one.

Because this is an area of frequent abuse, the documentation requirements are strict. 

You must maintain

1.                  Who you entertained

2.                  Your business relationship with them

3.                  The purpose of the entertainment

4.                  And the benefit you derived from it

Let’s give an example.  (Purely ficticious.)

Joe is a self employed HVAC installer.  Sam is a self-employed contractor.  They meet a homebuilders convention.  Joe invites Sam to a nice steak dinner in hopes to getting Sam to agree to use him on his future jobs.  Joe must not only keep the receipt from the meal, but then make a note of who was there, the purpose (such as – tried to secure agreement to be used on future jobs), and the benefit (such as secured agreement.)  Even if he didn’t necessarily secure the agreement, the meal would still be deductible. 

But one would not expect Joe to continue to take Sam out weekly if he wasn’t benefiting from it.  So if weekly meals were deducted, one would conclude that this was more of a friendship than a business relationship.

See the logic?

If you have a question, think to yourself, would an employed person be able to get reimbursed from their company for this?  A lot of times that clears it up.

This area is often a confusing area for the self-employed and often unintentionally done incorrectly.  (And sometimes intentionally.)   J

So, you can sleep better tonight knowing you did algebra and taxes all in the same day!