Five ways to give - and deduct it too
By Jeff Schnepper
You'll find many opportunities to turn personal expenses into business deductions. Just keep a lookout for them and follow a few simple steps.
There are really only two ways to reduce your taxes:
Know all the legitimate deductions allowable;
Convert your personal expenses into deductible business expenses.
But that sounds so, well, boring. Especially since we’re about to enjoy Christmas, Hanukah, and New Year’s. With the holiday season approaching, let’s make those dollars you’re spending anyway into allowable deductible expenses. It’ll be fun.
The celebration deduction
Parties. Yes, they’re fun, and I hope you get invitations to a lot of them. If you’re lucky, you might even generate some deductions from them. Here’s an easy one. Let’s say you buy a ticket to a party organized to raise money for a charitable cause. The price of the ticket is $125, but the cost of the party is $25. You get to deduct the $100 excess.
Let’s change the scenario slightly. You go to a party that has a silent auction for goods and services. All of the proceeds raised go to charitable organizations.
Whatever you (or anyone else) donates to the auction becomes deductible to the donor. So, if you donate two NBA basketball tickets with a face amount and cost to you of $200, you get to deduct the $200. If you’re the winner and pay $250 for the tickets, you can deduct the $50 excess over the face amount as a charitable contribution.
There is a way to write off all of it. Just take a business associate to the game. Make sure you discuss business before, during or after the game. Then, the $200 becomes a deductible business expense.
If you’re self-employed, the $200 is allowed above the line as a business deduction on Schedule C. You get the deduction even if you elect the standard deduction.
If you’re an employee, the deduction is allowed as a miscellaneous itemized deduction on your Schedule A.
Now, the downside of this wonderful tax break is this: the tax code gives you no deduction for the value of your services. So if I contribute an estate plan to the auction, I get no deduction for the value of my time and expertise.
The holiday meal. Christmas dinner or a New Year’s brunch is also a great opportunity to give and get deductions.
If you have a holiday dinner with business associates and discuss business (they call it talking “turkey”), that converts the meal into a deductible business expense. The key here, as with all other deductions, is substantiation. Don’t try to just “wing” it. Get a “leg” up on the IRS by making a separate shopping trip for the business meal and, on the back of the shopping receipt, listing the business associates attending and the business discussed.
Taking care of the needy.
The holidays are the time when many people show their gratitude by giving turkeys and food to poor and needy families.
The tax code is tricky here. If you make the donation directly to the family, it isn’t deductible. That’s because each needy family isn’t an IRS recognized charity.
Instead, give your turkey via your church, synagogue or Rotary organization. Then, you’ve made a deductible charitable contribution to a recognized charity. By filtering your contribution through the charitable organization, you have ensured the allowance of your donation.
Any out-of-pocket expenses would also be deductible. For example, my Rotary organization distributes turkeys to the needy in southern New Jersey. When the turkeys are delivered, we get a charitable mileage deduction of 14 cents per mile, plus any tolls and parking expenses paid.
Giving and getting
Ah, those holiday gifts. When you think of Christmas, the first thing that comes to your mind is gifts (at least that’s the first thing my kids think of). If you give a gift to a business associate, that gift becomes a business deduction.
You can deduct a maximum of $25 per person for business gifts. That’s why you see (or maybe used to see) so many bottles of liquor exchanged at Christmas: they fit within the $25 limit. The excess over the $25 is not allowable. (So be forgiving if your boss doesn’t give you a $50 bottle of wine.)
Just because someone is related doesn’t disallow the gift. As long as there is a business relationship, the gift should be deductible.
Even if there’s no business relationship, creative tax planning could get you an additional deduction. Several years ago I gave my kids sweatshirts with “Ask my Dad…” on the front, and “…How To Pay Zero Taxes” on the back. They weren’t deductible as gifts or clothes, but were allowable as business advertising!
I know, this may sound close to the line, but it isn't even near it. Think Century 21 jackets. Think about shirts your company gives out. In all cases, they are allowable as "advertising." My business is tax planning, and I have a book called How To Pay Zero Taxes. It was clearly advertising for me -- and I actually got clients from it!
Lots of people vacation over the holidays. Find a business purpose for your travel, and you’ve converted a personal trip into a business deduction. Use your creativity and substantiate the business reason for the trip. Letters to and from the people you’re visiting, clearly showing the business nature of your visit (and find a way for your trip include more days working than playing), will again insure your deduction.
The holidays are a time for joy and celebration. But that’s no reason why you can’t have them partially financed by the IRS. It’ll just give you one more reason to celebrate.
Remember, as Benjamin Franklin so succinctly put it, “Activities engaged in by a citizen to prevent the Government from confiscating the fruits of his labor are the noblest endeavors of man.”
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