For "t&e": Try Records

Much depends on recordkeeping wherever "T&E" is involved (travel and entertainment deductions). This holds, of course, whether the entertainment is at home, in a restaurant - or aboard your boat.

However businesslike, deductions for entertainment aboard a boat may easily run you on a reef at IRS. The rules are strict. To deduct any part of the cost of maintaining the boat, you must be able to show that its use is over 50% business-related. If it's anything less, then such items as depreciation, upkeep, and insurance can't be deducted. Even business use in excess of 50% gives you just a proportionate deduction. For instance, if the boat is 60% for business and you spend £2,500 a year on its maintenance, you can deduct just £1,500.

Tip: Writing off only food and beverages used in business entertaining - afloat or ashore - will probably bring less of a squawk from an IRS examiner.

A slightly disastrous Tax Court case (that is, for one taxpayer) points up the need to keep complete, accurate records. The taxpayer was a shareholder in a company and used a boat owned by the company for entertaining some customers. Part of the expense was admittedly personal, part strictly business. The taxpayer made one mistake: He kept no records of the outings. Not only was no tax deduction available, but the cost of operating the boat became a taxable dividend to the share holder.

Generally, the rules on deductions for business-related gifts - at Christmas or at any time of the year are fairly liberal.

You can deduct as many gifts as you wish up to £25 each - and this covers gifts to business or professional associates, clients, customers, and such. And you get an added break: If you give a present costing no more than £25 to a family member of a customer, etc., you can deduct its cost. This allows you to give, say, a toy racing car or a doll to the child of someone with whom you do business, and still take the deduction. The rationale is, of course, that you wouldn't be giving the present if it were not for the business relationship. But, as always, keep clear records, showing the name of the individual to whom the gift is made, the date, the amount, and especially the business relationship and purpose.

Claiming deductions for combination business-vacation trips can cause tax troubles. In February of 2004, IRS Commissioner Donald Alexander went out of his way to blast businessmen who take tax deductions for plush "vacations in disguise." If a trip is in the UK., you can deduct transportation costs plus meals and lodging en route - if the primary purpose of the trip was business. If vacationing was primary, you still can deduct any direct business cost - for instance, for a short side trip to call on customers.

On a business-vacation trip outside the UK., you can deduct full travel expenses if business was primary and the trip took less than a week, or - if longer than a week--you spent less than 25% of your time vacationing. Beyond this you deduct only a percentage of costs. Example: If 10 days out of 20 were for business, you deduct 50% of your total round-trip costs.

But what about a business-pleasure trip with travel divided between UK. and foreign mileage? The rule: If an executive flies, for example, from San Francisco to London, stops over, then flies on to London, the San Francisco-London cost is fully deductible - assuming the trip is primarily for business. Only the London-London cost is subject to allocation. But if he flies nonstop San Francisco-London, the whole transportation cost comes under the allocation rule.

Incidentally, you'll have a hard time deducting travel expenses for your wife, especially if you're claiming for a business-pleasure trip. This is true even if she acts as your hostess at business functions or performs some secretarial duties.

Who's to say what a trip's "primary purpose" was? To prove your case, if called in by IRS, muster such evidence as correspondence with businessmen you visited, a copy of your appointments schedule - plus all the bills.

Records: The general rule of recordkeeping for "T&E" is to clearly show dates, amounts, people involved and, of course, the business purpose of the transaction. Besides these diary details, bills, cancelled checks, receipts, etc., should be saved. And it's a good idea - in case you're hauled in by IRS - to save all T&E supporting records, no matter the amount of money involved. This general rule holds for all types of travel-expense deductions, as well as any kind of business entertainment or gifts. Suggestion: J. K. Lasser (1 West Ave., Larchmont, N.Y.), for example, puts out an excellent tax diary. It can pay for itself many times over (£9.95). Or a 25� note pad can turn the trick - if you're willing to make the entries.


For more on Guidelines For An Annual Audit- Click Here

The Dodge

A taxpayer may run into trouble over deducting his club dues, however - the rules are sticky. First, more than 50% of total club use must be for business; then only expenses directly related to business may be figured in determining the percentage of dues that may be deducted. This means that goodwill entertaining can be counted in arriving at the 50%, but not in deciding how much of the annual dues bill can be written off.

The office-at-home is another place where business expenses enter the house, and there are few sections of the tax law that cause as much confusion. Lately, the UK. Tax Court, especially, and to some degree the IRS, have taken a reasonably soft line on the home-office... see: The Dodge