Meals & Entertainment Expenses, Foreign Bank Accounts and Foreign Activity
We hope all is well!
We are working diligently on the remaining returns in house. If you still need to provide information to us, please do so as soon as possible.
A few topics have come up recently so we thought it would be good to discuss them in this edition of our newsletter.
Meals & Entertainment Expenses in 2023
We get questions throughout the year on meals and entertainment, so in this edition, we would like to discuss meals and entertainment expenses for business.
The bad news is that Congress has eliminated the “entertainment” deduction for businesses. Entertainment includes fees and dues for any social, athletic, sporting club or organization or event.
The good news is that meals are still a valid business expense. A business can deduct 50% of the cost of meals as a business expense – as long as the expense meets the following criteria:
• The expense must be ordinary and necessary and paid in carrying on a trade or business.
• The expense must not be lavish or extravagant.
• The taxpayer (or an employee) must be present while food/beverage is being provided and must be provided to the taxpayer.
• If the food/beverage is provided during an entertainment activity, separate invoicing is required, otherwise it will be considered entertainment and disallowed.
The IRS requires that the expenses be substantiated. The IRS wants the following information included:
• The amount of the expense,
• The time and place of the expense,
• The business purpose, and
• Business relationship
What a lot of clients will do is take the receipt from the restaurant and write the name of the attendees at the top and a couple of words about the reason for the meal, etc. We recommend then saving or scanning that receipt into safekeeping. Technically, the credit card statement that comes at the end of the month is not enough for substantiation by itself.
We will use those statements when preparing the returns/books, but please keep the receipts for your records in the event you are ever audited.
Foreign Bank Account and Foreign Activity
More and more of our clients are invested in activities overseas. We have discussed this in the past, but we thought that we would discuss again to keep these requirements fresh in your mind. FinCEN Form 114 US persons are required to disclose any financial interest in, or signature authority over a foreign bank account, securities account, or any other financial account. The reporting occurs on a FinCEN Form 114. The requirement is: If you have any foreign account that has more than $10,000 USD at ANY point during the year, then you will need to file this form. We prepare these forms and file them as part of the individual tax return, so we just need to know if you have these investments/accounts. Form 8938 If you have investments in these accounts and the value is more than $50,000 USD at the end of the year or more than $75,000 USD at ANY time during the year, then you have an additional filing requirement – Form 8938. This is also part of your tax return filing, so we just need to know you have these. Furthermore, if you are earning interest or income on these accounts, we would report that income, similar to reporting bank interest or investment income on US assets. Foreign Gifts Foreign gifts are any asset or money that you receive from a foreign person that is being treated as a gift rather than included in your income. Foreign person is: • A non-US citizen residing outside of the US • Foreign corporations, partnerships, estates, etc. If it is a gift, it is not subject to taxation, but if the gift exceeds certain thresholds, then you must report it to the IRS. If you receive gift(s) more than $100,000 in a tax year, you will need to file Form 3520, which has the same deadline as an individual return. The IRS imposes onerous penalties for not filing. The initial penalty is the greater of $10,000 or 35% of the value of the property transferred. So, as you can see, the penalties are severe, and reporting is imperative to avoid penalties. Please let us know if you receive large gifts from foreign persons.