Here’s what businesses need to know about the enhanced business meal deduction

Businesses should begin planning now to take advantage of tax benefits available to them when filing its 2022 federal income tax return. This includes the enhanced business meal deduction.

For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.

To qualify for the enhanced deduction:

  • The business owner or an employee of the business must be present when food or beverages are provided.
  • Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
  • Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023.
  • The expense cannot be lavish or extravagant.

Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants. ­

Employers may not treat certain employer-operated eating facilities as restaurants, even if they operate under contract by a third party.

Here’s what business owners need to know about certain costs:

  • The cost of the meal can include taxes and tips.
  • The cost of transportation to and from the meal isn’t part of the cost of a business meal.

Entertainment events

Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event if either of these apply:

  • the purchase of the food and beverages occurs separately from the entertainment
  • the cost of the food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts.

Businesses should review the special recordkeeping rules that apply to business meals.

Call the Crosslin tax team at (615)320-5500 with any questions.  We are here to help!

 

Here’s how to tell the difference between a hobby and a business for tax purposes

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. Many people engage in hobby activities that turn into a source of income. However, determining if that hobby has grown into a business can be confusing.

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

These factors are whether:

  • The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.
  •  The taxpayer puts time and effort into the activity to show they intend to make it profitable.
  • The taxpayer depends on income from the activity for their livelihood.
  • The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.
  • The taxpayer has enough income from other sources to fund the activity
  • Losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
  • There is a change to methods of operation to improve profitability.
  • Taxpayer and their advisor have the knowledge needed to carry out the activity as a successful business.
  • The taxpayer was successful in making a profit in similar activities in the past.
  • Activity makes a profit in some years and how much profit it makes.
  • The taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts, and circumstances with respect to the activity must be considered. No one factor is more important than another.

If a taxpayer receives income from an activity that is carried on with no intention of making a profit, they must report the income they receive on Schedule 1, Form 1040, line 8.

Call the Crosslin tax team at 615-320-5500 with any questions.  We are here to help!

Why it may take longer than 21 days for some taxpayers to receive their federal refund

The IRS issues most refunds in fewer than 21 days for taxpayers who file electronically and choose direct deposit. However, some returns have errors or need more review and may take longer to process.

Things that can delay a refund:

The IRS will contact taxpayers by mail if it needs more information to process their return.

The fastest way to get a tax refund is by filing electronically and choosing direct deposit.

Taxpayers can check the status of their refund online.

To check the status of a refund, taxpayers should use the Where’s My Refund? tool on IRS.gov. If taxpayers file electronically, they should wait twenty-four hours before checking the status of their refund. If taxpayers file a paper return, they should wait four weeks before checking the status.

IRS representatives on the phone and at Taxpayer Assistance Centers can only research the status of a refund if:

  • It’s been 21 days or more since the taxpayer filed the return electronically.
  • It’s been six weeks or more since the taxpayer mailed the return.
  • The Where’s My Refund? tool tells the taxpayer to contact the IRS.

As always, contact the Crosslin tax team at (615) 320-5500 with any questions.  We appreciate your business!

Taxpayers must report tip money as income on their tax return

For those working in the service industry, tips are often a vital part of their income. Like most forms of income, tips are taxable. Therefore, it’s also vital that people understand the tax obligations that come with tip income. Here’s some information to help taxpayers report tip income so they don’t receive a surprise tax bill.

Taxpayers must include all tips they receive in their gross income. This includes:

  • Tips directly from customers.
  • Tips added using credit, debit or gift cards.
  • Tips from a tip-splitting arrangement with other employees.

The value of non-cash tips, such as tickets, passes or other items of value is also income and subject to tax.

Three things can help taxpayers to correctly report their tip income.

  • Keep a daily tip record.
  • Report tips to their employer.
  • Report all tips on their income tax return.

What employers need to know

If an employee receives $20 or more in any month, they must report their tips for that month to their employer by the 10th day of the next month. The employer must withhold federal income, Social Security and Medicare taxes on the reported tips.

Call the Crosslin tax team at (615) 320-5500 with any questions.  We are here to help!