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    Mathandler1's Avatar
    Mathandler1 Posts: 87, Reputation: 2
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    #1

    Aug 28, 2007, 11:22 AM
    Entertainment Expenses
    A hyperthetical question here. If I was a sales rep. and I took a client(s) out to entertain for the year. My expenses are cab fare of $22, Cover charge at a club of $40, dinner at the club is $190, and tips added to $38. What would be my end of year tax deductions? Thanks!
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #2

    Aug 28, 2007, 11:30 AM
    Mathandler1 - since you are taking an income tax accounting course you should not just post questions straight out of you're homework assignment and expect us to answer them for you - pleases try and answer some of the "hypothetical" questions you've been posting lately on your own. I bet the method to answer this one is right there in your text book. If you would like confirmation that you have the right answer, please tell us what you think the answer is and then I'm sure someone will be glad to help check it for you.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #3

    Aug 29, 2007, 08:17 AM
    I agree with Ebaines.

    You are taking the tax course to LEARN, which will not happen if we answer the questions for you.
    Mathandler1's Avatar
    Mathandler1 Posts: 87, Reputation: 2
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    #4

    Aug 29, 2007, 02:05 PM
    This not homework assignment. My homework assignment is a essay on tax laws. This is a DQ (discussion question) and the textbook is not clear on defining this scenario. I was looking for imput from outside of course. Thanks!
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #5

    Aug 29, 2007, 05:13 PM
    Okay, depends on how the sales rep is paid!

    If he is paid under Form 1099, then all the expenses are fully deductible EXCEPT the food, which is limited at 50%.

    If he is paid under W-2, and these are his ONLY expenses, then he will get NO deductions, because he will NOT exceed the 2% floor for Miscellaneous Deductions.
    Mathandler1's Avatar
    Mathandler1 Posts: 87, Reputation: 2
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    #6

    Aug 30, 2007, 12:29 PM
    Thanks! According to page 11 in IRS Publication 463, the 50% deduction includes meal, tips, and cover charges; and the taxi fare is covered 100% as long as it is all or most of it is business related not personal. So my deductions should be $156 [($40 + 190 + 38)/2 + 22].
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #7

    Aug 30, 2007, 01:33 PM
    You are right about the tips and cover charges, as they are considered ENTERTAINMENT costs.
    The Texas Tax Expert's Avatar
    The Texas Tax Expert Posts: 310, Reputation: 7
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    #8

    Sep 1, 2007, 07:17 AM
    Actually, the real answer is that it depends on whether the entertainment was preceded by a substantial and bona fide business discussion.

    Business is assumed not to have been conducted in settings not conducive to discussions, such as nightclubs and at sporting events.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #9

    Sep 4, 2007, 09:21 AM
    TTE has a valid point. There must be a valid, bonafide business purpose of the entertainment costs.
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