Case Studies
Meals and Entertainment Deduction
We advise all clients with a potential M & E deduction of the methods to guarantee the deduction. One client was a theatrical electrician who was on the road for an excess of 300 days per year. The union to which he belonged negotiated a new contract under which the employee was paid a higher salary in exchange for his reimbursement of meals. Accordingly, we deducted his meals pursuant to IRS regulations. When IRS requested an audit, it requested an explanation of why there was a deduction that year. We explained about the change in wages. When the auditor asked why our client spent so much money on his meals, we explained that he was in his late 70’s, was unmarried, and had no children. Being on the road as a theatrical electrician, he had no time for movies and shows, and his only real enjoyment was dining. We then produced the necessary documentation and the agent issued a no change report upholding the M&E deduction.
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Sales Tax Deduction
A husband and wife moved to Connecticut from a state that had no income tax. Their prior preparer had therefore relied on an itemized sales tax deduction. When preparing the current year’s return, we noted that the couple had purchased a new car the prior year. Accordingly, we went back and checked the amount of the sales tax deduction itemized on the prior year’s return. Their former tax preparer had used the amount from the allowed IRS tables and had ignored that taxpayers can also deduct large purchases such as automobiles when taking a sales tax deduction. We filed an amended return for the previous year on behalf of the couple, and they received a sizable refund.
Strategic Business Planning
A client was relocating his business headquarters out of Connecticut but did not want to form an out of state corporation in the new state. We explained that if the business continued as a Connecticut corporation, it would have to file in the new state as a foreign corporation, subjecting it to state taxes both in Connecticut and the new state. Furthermore, the sole shareholder might be subject to Connecticut taxes personally based on the profit of the corporation. We advised the client to wind down the Connecticut corporation and form a new corporation in the new location. Despite the initial expenses, in the long run, the new corporation would save the business and possibly the sole shareholder money.