Area Man Treats Colleague to Dinner, Drinks

Area Man Treats Colleague to Dinner, Drinks

 The three-martini lunch has a long and mostly honorable history as a deductible business expense. As former President Gerald Ford once said, "Where else can you get an earful, a bellyful, and snootful at the same time?" Ford's successor, famed buzzkill Jimmy Carter, tried (and failed) to cut the deduction from 100% to 50%. The Tax Reform Act of 1986 succeeded in that goal, and today's business diner has probably switched from martinis to white wine. But old habits die hard — check any happening lunch spot and you'll find happy diners eating partly on Uncle Sam's dime.

The rapper-turned-mogul Jay-Z may have 99 problems, but reaching for the check isn't one. Last month, he treated the president of his Roc Nation Sports talent agency, Juan "OG" Perez, to an epic birthday night in Manhattan. The posse started with dinner at Zuma in midtown, where he dropped $13,000. After dinner, he took them uptown to Made in Mexico for $9,000 worth of drinks. And a group of six stragglers finished off the night at Playroom, where the real fun started.

Apparently, Jay-Z and his friends were very thirsty, very generous, or both. The group's bar tab — ticket #48 — included 20 bottles of Ace of Spades brand "gold" champagne at $1,200. Each. Plus 20 bottles of "rose"champagne at $2,500. Each. Plus $6,035 in sales tax (of course). Plus an $11,100 tip. Grand total, $91,135.00. Hear it for New York!

So . . . Jay-Z takes his employee out to dinner. Surely they talked business while they were painting the town. Should Jay-Z stuff his receipt in a shoebox to save for this year's tax return?

For starters, there's a debate brewing over whether business meals are now deductible at all. For 31 years, there was no debate that you could deduct 50% of meals where there was a substantial, bona fide business discussion. The Tax Cuts and Jobs Act clearly eliminates deductions for "associated entertainment" expenses, like golf or a ball game taking place before or after that business discussion. However, some tax professionals read the new law as eliminating the deduction for meals, too.

But even assuming the deduction survives the new law, there's another hurdle to overcome. Code Section 274(k) prohibits deductions "for the expense of any food or beverages unless such expense is not lavish or extravagant under the circumstances." Now, you can argue that if you're Jay-Z, you're expected to make it rain with $74,000 worth of champagne. And if you're talking a glass or two to celebrate signing a big deal, you might even be right. But we can probably assume that even Jay-Z's fans at the IRS would draw the line somewhere well before the 40th bottle.

As for that $11,100 tip . . . sure, it sounds like a baller move. But it's actually just 15% of the pre-tax tab, and pretty stingy for New York! Plenty of celebrities are known for being better tippers. Shaquille O'Neill asks servers to tell him how much they want. And George Clooney routinely leaves servers a 150% surprise. Walter White, of Breaking Bad fame, left a $100 tip for breakfast on his 52nd birthday, although it did turn out to be his last meal.

When was the last time you went out for a really special meal? Was it a birthday, an anniversary, or some other celebration? It probably wasn't deductible. But careful tax planning might keep enough in your pocket to cover your own epic night out. So call us when you're ready to save, and let's see if you can raise a glass of bubbly to the results! 

Very Serious Stuff

When most of us think "taxes," we think of federal taxes -- the IRS, Form 1040, and everyone's favorite holiday, April 15. It's true that the IRS is full of Very Serious People collecting Very Serious Taxes. But we can't forget state and local governments either. They collect their fair share of serious taxes -- but they impose some pretty silly tax laws, too. Here are some of our favorites:

• California offers a tax exemption for income you receive to settle claims arising out of the Armenian genocide. If you or your ancestors were persecuted by the Ottoman Turkish Empire between 1915 and 1923, your income from that settlement is tax-exempt. But sadly, if the persecution occurred in 1924 or later, your friends in Sacramento want a share.

• California also imposes a 33% tax on fresh fruit bought from vending machines. Apparently, the folks in charge of promoting healthy lifestyles would rather see you buy cookies or potato chips!

• Maryland imposes a $5.00/month "Chesapeake Bay Restoration Fee" on homeowners and businesses to raise funds to improve sewer treatment plants that discharge into the bay. Naturally, taxpayers have dubbed it the "flush tax."

• Minnesota and several other states impose a tax on marijuana -- in Minnesota, it's $3.50 per gram. But wait, you say . . . pot isn't even legal in Minnesota, is it? Well, no, it's not . . . but if dealers don't pay the tax, the state has another way to bust them. (Remember who finally got Al Capone?) So . . . genius? Or evil genius?

• New York lets you buy bagels and take them home to eat without paying sales tax. But let the counter man slice it, and now it's a "prepared" meal for on-premises consumption -- and subject to an 8% sales tax.

• Oregon generously gives double amputees a $50 tax credit. But lose just one limb and you're out of luck. (Apparently, it costs an arm and a leg to be disabled in Oregon!)

• South Carolina offers a $50 per carcass "Venison for Charity" credit, with an actual form (SC Schedule TC-51) for licensed butchers and meat packers who donate deer meat for distribution to the needy. (We're not making this up.)

• Washington's King County, which includes Seattle, imposes a new $50 fee to report a death to the Medical Examiner's office. Officials call it a crime-prevention measure to give the government enough money to look at more questionable deaths for evidence of crime.

Governments have always found silly ways to nickel-and-dime their citizens. And some of those are just plain unavoidable. (If you live in Maryland's Chesapeake Bay watershed and you've got to go, well, you've just got to go.) But there's nothing silly about wasting money on taxes you don't have to pay. That's why we specialize in proactive tax planning to help pay less. Do you think you paid too much on April 15? Give us a call and let's see if we can save you some serious money!