Sweeping Up Those Nuggets Around The House

An excellent New Year's resolution - say the savviest pros in the world of taxes - is to begin sweeping together all the tax savings that likely as not are scattered about your own house, from liquor cabinet to filing cabinet. The point they raise can make a clean-cut entry on anybody's form 1040, and quite a profitable one at that: It's rare these days say the pros, to find a businessman, from company directorto branch manager, who seldom if ever entertains business associates at home, who has no business-book shelf in his library, or hasn't set apart even a corner of his den for office work at night.

And - and here's the pound-saver - it is just about as rare to find the man who picks up all the possible tax deductions allowed for such expenses. These days deductions of this type are more important than ever, since both the Internal Revenue Service (IRS) and the local courts have lately eased up a bit in these at-home areas. "Your office-at-home alone," says a Washington tax solicitor with a carriage-trade clientele, "might easily buy your wife's next Christmas present. That is, if you take the full tax deduction."

There are two sensible rules, at the outset:

For the current year, be sure to keep a clear diary of all business entertaining at home, with receipts, plus other records covering all manner of business-related obligations that trail all the way to the front door. In taxes, much depends on records - and even a smart Accountant can't win anybody money from the IRS with barebones estimates of business entertainment expenses. To a lesser degree, the same holds for such things as the home-office and library.



For the past year, if you haven't yet filed, remember that it's possible to reconstruct needed records for taking deductions. It is not possible, of course, to create a tax diary; but it is quite possible to recover lost records or those that have never been collected, to fill out incomplete ones in many cases, and come up with the paperwork that will be needed for the April filing.

To deduct for any entertainment at home, the taxpayer - if challenged by IRS - must be able to show that his guests were business associates who were there for business purposes. "Associates," incidentally has a broader meaning than many realize. It covers customers, clients, suppliers, employees, advisers such as management consultants or company solicitors, plus fellow managers and executives. The term even includes prospective associates, in a section of the tax law that is unexpectedly liberal. For example, a possible customer, or a young man invited to your house for an informal interview for a job in your department, fits the definition "Associates" includes the wives of business contacts, too - and one's own wife, as well--if it's a party with a clear business purpose behind it.

Goodwill entertaining at home deserves a special note. It clearly counts in toting up deductions, notwithstanding its pure informality and indirect connection to a particular business deal. It needn't be shown, for instance, that after dinner the men at the party departed to the den to talk business. Here again, the underlying business purpose is what counts.

Home entertainment deductions can be worth more than the cost of salted peanuts, reminds the Manhattan Accountant. "Let's say that at Christmas you gave a cocktail party for 25 business contacts and their wives, but haven't the receipts to show for it. By phoning the local gourmet shop, party store, bakery, and your liquor store, you come up with bills totalling, say, £175 for 50 people (£1 a person for food, £2 for drinks, 50� for extras). Attach the bills to your cancelled checks (if you've lost the checks, explain it), have your secretary list the 25 men and their business relationships - and you should have the makings of a clean-cut £175 tax deduction."

Often times a man's wife can solve some records problems where there is a good deal of casual business entertaining at home. Her help in recalling guest lists, dates, items purchased, and such, might turn up a surprisingly sizable deductible-entertainment calendar for the year. Note especially that records need to be crystal clear where business or professional associates are mixed with personal friends at parties. This can trip a taxpayer.

The evening itself may be more readily mixed. If, for example, you have business people and their wives to, say, dinner at home, then drive them to your country club for dancing, the evening's club expenses are as clearly deductible as the cost of the dinner--even the drive can be written off at 12�-a-mile.


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The World Of Tax Deductions

Tax withholding by an employer is straightforward enough. But the part of it that has to do with extra withholding allowances is another place where taxpayers get confused. The basic idea: You get to cut your company withholding - if you wish - to compensate for exceptionally high deductions. Instead of having more withheld and picking up a refund after the year is past, you have less withheld.

This, in effect, puts more cash in your pocket today - money that otherwise would rest in UK. Treasury coffers at a zero interest rate. It also has the advantage of tipping you off to the need for a general review of your itemized tax deductions.

What you do - but only after filing... see: The World Of Tax Deductions