Updated: May 26, 2019
Congratulations on your thriving small business (inserts applause). As your business grows, so will the need to meet, engage and convince clients to use your product or service. Securing a client may mean picking up the tab for business related meals and entertainment; and countless phone meetings.
Here's a quick rundown on when entertainment expenses and cellphone usage count as business or pleasure and what percentage may be deducted.
Let’s do Lunch
When the Tax Cuts and Jobs Act (TCJA) rules were released, lawmakers implied that businesses could not deduct 50% of business meals with current or prospect anymore. However, that was not the case. In fact, the IRS stated that businesses could continue to do business over lunch – and deduct 50% of the cost. However, if you aren’t conducting business over lunch, and the goal of the meeting is for purely entertainment; The IRS is clear: You cannot include those expenses as tax deductions under any circumstances.
Additionally, all food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event or if the cost of the food and beverages are separated from the cost of the entertainment on one or more bills, invoices, receipts, etc.
Can you hear me now?
Let’s face it; landlines are almost extinct. Smartphones play a considerable role in the way people communicate; especially businesses. So, it’s no surprise that cellphone use for your company is a legitimate, deductible business expense. However, the distinction between personal and business use when it comes to cellphones is closely intertwined that the IRS thoroughly examines deductions to ensure personal cellphone use is not being claimed as a business expense. If 30 percent of your time on the phone is spent on business, you can legitimately deduct 30 percent of your phone bill.
Listen up; it pays to have old things. Well at least in the case of older cellphones. New tax law allows you to write off cellphone depreciation—the loss in value from everyday wear and tear—over a seven-year schedule, in addition to making it easier to claim bonus depreciation.
Bottom line: Make sure you keep audit-repellent documentation of all of purchases with adequate notations as added proof. If you are armored with solid proof of payments and receipts with notations, you should have a productive and no-stress tax-filing experience.
Essential Accounting has been rated the Three Best Accounting Firms in Cleveland. Read the full article here. For help with you tax services contact us today!