Friday afternoon, 2/12/21, I received a call from Meredith, our financial advisor and tax planner. She has been in a holding pattern as it relates to the tax auditor who was looking into my 2017 Warren Solar business tax returns. I did a great deal of preparing and reviewing of these records months ago. I dug out of our storage closet the boxes and files that related to that time frame.
Let there be no confusion, 2017 was a freakin’ hot mess and my rock bottom. Because of 2017, I was found my way into my first 12th step room of recovery on and started my sobriety date from all mind altering drugs and alcohol on March 1st, 2018.
The auditor wanted to see these categories and itemized expenses: Business Cost of Goods Sold (COGS), Meals and Entertainment, and Travel expenses for my defunct solar business.
Meredith’s phone call was to say that the auditor has reviewed the documents and he thinks that my “travel expenses” are actually “meals and entertainment expenses.” So, what does this mean and why is it important. Travel expenses allow for 100% of the expenses to be written off. Meals and Entertainment expenses allow for 50% of the expenses to be written off. The logic here is that the government knows that you are going to have to eat one way or the other, so you can’t write off all the meal. The entertainment expenses are fun and entertaining, even if you are taking a client out with you. You can’t write off all of that expense, just half.
While on the phone with Meredith, he digs deeper and asked her “what happened during this year? What’s going on here?” Meredith sounded like she was a God-send and responded with the truth. She shared with him that 2017 was Matt’s rock bottom year. He did the best he could with all that was going on that year. However, you should know that he is a true success story. Matt has turned his life around and gotten as far away from this solar industry as he can. This year was an exception and a turning point for Matt.
When I heard that, I wanted to reach through the phone and hug Meredith for her comments to the auditor. He said, “Oh, I really appreciate you telling me that. That helps a lot. Let me think on this and I’ll get back in touch with you next week. Let me see what I can do here. What I see going on is that there are about $700 in deductions that are coded as “travel expenses” that look to me to be actually “meals and entertainment.”
By me coding them wrong, that would mean that the amount that can be deducted should have been half of what they actually were. Meredith told me that I can go look for anything that might have been left out and we can submit that to him for his review.
I shared with her that this could be tricky and probably not worth it. I would probably be better to take the slap-on-the-wrist, pay the “miscalculation” and the fine, interest and shortage in taxes for 2017 and roll on.
Meredith said that the expense would have to be about $3,000 to off set the miscalculations. Well, that is not as easy of a task as it sounds to go and find $3000 of expenses that were not previously recorded. And doing that would really cause more red flags to probably go up to the auditor. Then, he could be curious and want to see ALL of the categories and do an even deeper audit if I come back with $3,000 worth of random expenses that “Oops, I missed.”
What can’t happen, in my mind, is that I go pull some expense and a deeper audit is done one older years, like 2016, 2015, or worse, he wants to dive deep into Meagan’s business expenses. I’m not worried about her business expenses and write-off’s, but I have to remember that the costs of the accountant’s time is racking up the longer that this rolls on. Everytime she has to talk to him and then call me to tell me what happened, stop and talk to Mark and the team in her office to “update them”, the time clock on Matt’s unlimited tab is running. I’ll get a bill in the mail soon that will show her time at $165 per hour, or something like that.
I’m not saying that her time and her team’s is not worth every penny. I’m not saying that at all, I am just thinking and considering that we should probably just pay the amount that we are due, and roll on. Close the case with the auditor as soon as possible. Otherwise, this could go on forever. The good news is that I am not debting any more. I’m not running up any more crazy “business expenses” today. I’m telling the truth and not cutting crazy corners on my tax returns.
For 2020, I have already submitted everything to Meredith and her team to go ahead and prepare the taxes. this is 2 months ahead of schedule. No more extensions, no more last minute filings and rushing to get things signed and submitted before April 15th. I’m so proud of where I am today and thank those who have helped me get here today. Especially those in the rooms of Debtors Anonymous and other 12 Step recovery programs.
A few articles I found doing research:
Convention Expenses May Be Deductible
You can deduct your travel expenses (including travel, lodging, and meals for yourself) when you attend a convention within the United States if you can show that attending the convention benefits your business. These rules apply to workshops, conferences and seminars, as well as actual conventions.
You can satisfy the business relationship test by showing that your business duties and responsibilities tie in to the program or agenda of the convention. The agenda doesn’t necessarily have to deal specifically with your duties or responsibilities – a tie-in is enough. You must, however, show some kind of income-producing purpose for attending the convention. In any case, you won’t be able to deduct any nonbusiness expenses (sightseeing, for example) you incur while attending the convention. credit: https://www.bizfilings.com/toolkit/research-topics/managing-your-taxes/federal-taxes/business-related-travel-expenses-are-deductible
Strict Limits Apply to Meal Costs
Meals Eaten Alone While Traveling Are Deductible.
The cost of dining alone is a deductible expense only if your business trip is overnight or long enough to require that you stop for sleep or rest.
Of course, if you entertain business guests at home or away you may be able to deduct a portion of the cost, if you meet the usual deductibility rules for meals and entertainment. However, even if you meet the requirements, you can deduct only 50 percent of the cost of the meals.
Allocation Required if Travel Combines Business and Pleasure
What about travel that is both business-related and personal? The IRS is on the lookout for taxpayers who try to classify a nondeductible personal trip as a deductible business trip. So, if you travel to a destination and engage in both personal and business activities, you can deduct your traveling expenses to and from the destination only if the trip is primarily related to your business.
The primary purpose of a trip is determined by looking at the facts and circumstances of each case. An important factor is the amount of time you spent on personal activities during the trip as compared to the amount of time spent on activities directly relating to business. Travel expenses outside the U.S. may be further limited if any part of your trip is for personal purposes.
If the trip is primarily personal in nature, none of your traveling expenses are deductible. This is true even if you engage in some business activities while you are there. (However, you may be able to deduct particular expenses you incur while you’re at your destination if they otherwise qualify as business deductions.)
Travel Expenses Must Be Business-Related
Your travel must be primarily business-related in order to be deductible. Pleasure trips are never deductible. You can deduct travel expenses only if you are traveling away from home in connection with the pursuit of an existing business.
Travel expenses you incur in connection with acquiring or starting a new business are not deductible as business expenses. However, you can add these costs to your startup expenses and elect to deduct a portion of them and amortize the remainder over 180 months.
Tip
If your spouse travels with you, you usually can not claim any deduction for your spouse’s expenses. For the travel expenses of a spouse (or dependent or any other individual for that matter) to be deductible, the spouse (or other individual) must also be an employee of the business. In addition, the spouse’s travel must be for a bona fide business purpose and the expenses must be otherwise deductible by the spouse.
Business Related Travel Expenses Are Deductible
By Mike Enright, Operations Manager, BizFilings
Travel expenses–those costs that you have when you are away from home on business–can provide you with significant business expense deductions. However, they are subject to numerous rules that you must follow carefully or run the risk of an unpleasant surprise when you are audited.
Travel expenses are among the most common business expense deductions. However, this type of expense is also one of the most confusing! When is the cost of a trip deductible as a business expense? How about conventions – particularly in other cities? What if you bring your family?
It will be easier to plan your business trips, and to combine business with vacation when possible, if you become familiar with the IRS’s ground rules.
The following is a list of expenses you may be able to deduct depending on the facts and circumstances:
- 50 percent of the cost of meals when traveling
- air, rail, and bus fares
- baggage charges
- hotel expenses
- expenses of operating and maintaining a car, including the cost of gas, oil, lubrication, washing, repairs, parts, tires, supplies, parking fees, and tolls
- expenses of operating and maintaining house-trailers—provided using one is “ordinary” and “necessary” for your business
- local transportation costs for taxi fares or other transportation between the airport or station and a hotel, from one customer to another, or from one place of business to another, and tips incidental to the foregoing expenses
- cleaning and laundry expenses
- computer rental fees
- public stenographer fees
- telephone or fax expenses
- tips on eligible expenses
- transportation costs for sample and display materials and sample room costs
Expenses must be ordinary, necessary and reasonable.
A travel expense is a type of business expense. Therefore, you must be able to meet the general business expense requirements in order to claim a deduction.
You can’t deduct travel expenses to the extent that they are lavish or extravagant—the expenses must be reasonable considering the facts and circumstances. However, the IRS gives you a great deal of latitude here. Your expenses won’t be denied simply because you decided to fly first class, or dine in four-star restaurants.
You must be “away from home” to deduct travel expenses.
It sounds obvious, but you must be traveling in order to deduct traveling expenses. That is you must be “away from home.”
However, as with much of tax law, it’s not as simple as it seems. For this purpose, you are traveling away from home if you meet the following two conditions:
- The travel is away from the general area or vicinity of your tax home.
- Your trip is long enough or far away enough that you can’t reasonably be expected to complete the round trip without obtaining sleep or rest. This doesn’t mean that you need to stay overnight at the destination; for example, it may be that you had an all-day meeting and needed to get a few hours sleep in a hotel before driving home.
Generally, your tax home is the entire general area or vicinity (e.g., a city and surrounding suburbs) of your principal place of business, regardless of the location of your personal or family’s home.
There are special rules governing the following situations:
- More than one place of business. If you conduct your business in more than one place, you should consider the total time you ordinarily spend working in each place, the degree of your business activity in each place, and the relative amount of your income from each place to determine your “principal” place of business.
- No regular place of business. If you don’t have a regular place of abode and no main place of business, you may be considered an itinerant – your tax home is wherever you work and, therefore, you can never satisfy the away-from-home requirement.
- Temporary assignment.When you are temporarily (a year or less), as opposed to indefinitely, working away from your main place of business, your tax home doesn’t change—all your “away from home” expenses are deductible.
