Meals & Entertainment expenses

[Greg Maxey]

This is probably more of a question for an accountant than it is a question
about MS Accounting Software, but I thought I would ask anyway.

Last year was my first year in business for myself. I kept meticulous
records of travel and meal expenses that occurred in the course of the year
and created an expense account in MS Accounting to track these expenses. My
bookkeeper just finished my business tax return and I learned that only 50%
of these expenses are deductible as a business expense.

My question is what do I do to reconcile my travel expenses (meals) expense
account? Do I do a journal entry to take exactly half out of that account?
Where do I put it? I certainly no longer have the physical cash to put back
into ready cash or some other account. I assume that it would be posted in
some sort of owner equity account as profit, but I am just not sure.

Thanks.

 

[DL]

Perhaps you might want to ask the bookkeeper as to specifically why they
have chosen to state these are not allowed.
A figure of 50% looks suspiciously like an off the cuff guestimate,
particulary with regard travel

Otherwise you journal between the expense account & Owners equity or
drawings, though I believe you are a Partnership?

 

[CMS, VA CPA]

There is no need to do anything.

The meals are a business expense and therefore 100% of the expense affects
"book" income.

They are just not fully deductible (only 50 % deductible) for tax purposes.

Book income and taxable income are not necessarily the same.


--
Charles M. Shanes, CPA
Charles M. Shanes CPA, LLC
Richmond, VA
QuickBooks ProAdvisor
Microsoft MPAN Member for SBA
www.shanescpa.com
(e-mail address removed)

 

[Greg Maxey]

DL,

The bookkeeper states that the tax code limits deductions for meals and
entertainment expenses to 50% of the amount claimed.

 

[Greg Maxey]

Charles,

Thank you. You obviously know what you are talking about and unfortunately
I don't. I have managed to keep track of a lot of expenses and numbers over
the year without a good grasp of what they really mean.

I am now hopelessly confused. Several months ago I asked here what I was
supposed to do at the end the year. I was advised to simply carry on until
my accountant had prepared the business tax return, to then ensure my
accounts matched the accountants, and then close the fiscal year.

If 50% percent of what I thought were expenses are now "taxable" (if it
isn't deductable then it must be taxable right?) then isn't this 50% now
part of my income?

I understand that you do this sort of thing for a paid living, but if you
can spare the charity to offer a little enlighten I will certainly
appreciate it.

Thanks.

 

[dan39]

Hi Greg,

Read this.

http://www.irs.gov/taxtopics/tc511.html

What Charles said is exactly right, you don't need to do anything.

All your accountant was saying that for tax purposes you could not deduct
100% of these expenses from your tax liability. (Which might be what he is
doing right now). The IRS clearly states that travel meals can only be
deducted up to 50%

To give a simple example, this is like taking the standard or itemized
deduction from your personal income tax return. You're not adding back
money to your "income" but you are decreasing the amount that is liable to be
taxed.

So this basically decreases what you owe in taxes because 50% of these
expense are deducted. this does not change how you expensed these items at
all in MOA.

 

[Greg Maxey]

Dan,

Thanks.