Deduction for Meals and Incidental Expenses Paid to Leased Employees

Preface: “Food is our common ground, a universal experience.” –James Beard

Deduction for Meals and Incidental Expenses Paid to Leased Employees

Generally, a taxpayer’s deduction for business meal expenses, including reimbursed amounts, is limited to 50 percent of the expenses paid during the tax year (80 percent in the case of certain individuals subject to the Department of Transportation’s “hours of service” limits). However, the limitation does not apply if the expenses are paid in connection with the performance of services for another person under a reimbursement or other expense allowance arrangement.

In the case of an employee, the exception to the limit only applies to the extent the reimbursement is not reported and deducted as compensation paid by the employer. In the case of an independent contractor, the exception to the limit applies only to the extent the independent contractor substantiates the reimbursed expenses to the payor.

 In applying these rules to amounts paid to leased employees for meal and incidental expense, the IRS has agreed that the limit should apply to the party that ultimately bears the per diem expense. Thus, if an employee or independent contractor incurs meals and incidental expenses in connection with the performance of services for another person and is not reimbursed, then the limit applies to any deduction claimed by the employee or independent contractor. However, if an employee or independent contractor accounts for the expenses to a leasing company, is reimbursed under an allowance arrangement, and the payment is treated as compensation, then he or she is not subject to the limit. Instead, the leasing company bears the expense and is subject to the limit.

On the other hand, a leasing company will not be subject to the limit if, in connection with its performance of services for a third party, it is reimbursed under an allowance arrangement with the third party, and accounts to the third party in the same manner that the employee accounted for the expenses. In such circumstance, the third party bears the expenses and is subject to the limit for the deduction that it claims.

 If you would like more information on how this is relevant to your business, or if you would like to discuss your employee meals reimbursement plan, please call our office at your  convenience.

7 Tips for How to Run a Business Debt-Free

Preface: Truth: Debt makes you weaker, not stronger. Remember: The borrower is slave to the lender.

7 Tips for How to Run a Business Debt-Free

…….To understand how a debt-free business sets you up to win, look no further than the classic fable The Three Little Pigs (yes, really!). The hero of the story (spoiler alert) is the pig who built his house with bricks—not straw or sticks. In financial terms, those bricks translate to rock-solid cash. Watching the other little pigs cut corners so they could pocket more money and put out less effort probably wasn’t fun for brick-house pig. But when the big, bad wolf came, brick-house pig was the last swine standing. All the huffing and puffing in the world couldn’t shake him or his house.

Just like brick-house pig, you want a strong foundation for your business—and that means keeping it debt-free. When your business is debt-free and strong, you’re strong too. You can keep a clear head and rise above fear, panic and hysteria when bad things happen. Even better: You can take advantage of rock-bottom prices and amazing opportunities as others cut their losses. Not a hair is out of place on your chinny chin chin.

….The bottom line of The Three Little Pigs is this: Hard work pays off. Yes, the extra effort might be rough at first, but it’s totally worth it. You’ve got this! As you strap in for the long haul of running your business debt-free, try out this financial advice for small businesses to get started:

Financial Advice for Small Businesses

Building Value Outside the Business

Preface: It’s a good idea to know what your business is actually worth – Donald Feldman.

Building Value Outside the Business

Credit: Donald Feldman, CExP™, CPA, CVA, MBA

Many business owners find the bulk of their wealth within their businesses. However, planning for a successful future often means wrangling financials outside the business too. This is especially important when markets may not be as favorable to small and mid-sized businesses as they have been in the past. Here are three things to consider to help you build value outside of your business.

1. Know your Business’ Real Value

Before you begin strategizing about the best way to build value outside your business, it’s a good idea to know what your business is actually worth. In many cases, business owners use rules of thumb, comparisons to competitors, or good ol’ fashioned wishful thinking to estimate company value. And it’s not uncommon for business owners to overestimate their company’s value.

However, using inaccurate estimates of business value can make it difficult, if not impossible, to create a strong plan to build value outside the business. After all, if you think you have everything you need based on inaccurate assumptions, it’s far too easy to take your foot off the planning pedal.
By working with a professional who can more accurately estimate your company’s value—such as via a Calculation of Value—you can begin to create a more focused plan to build value, both inside and outside the business.

In other words, when you know what you have now, you can carve a clearer path toward getting what you’ll need for later.

2. Diversify investments

Any good financial advisor will tell you that diversifying your investments is one of the most basic things you can do to build value.

With the advent of self-service investment tools and newer asset forms (e.g., cryptocurrency), it seems easier than ever to diversify investments.
Nonetheless, it’s prudent for business owners to be responsible when diversifying their outside investments. Even as technology allows easier access to investing, you should still consider how a diverse portfolio works toward your goals in the long term.

The past few years have shone brightly as a bull run in many markets. It may be tempting to try to catch that lightning again. But history often shows that disciplined investing, especially with professional help, makes longer-term planning more successful and manageable.

3. Minimize taxes

In addition to building value outside your business, it’s just as important to minimize how much value you lose. This often comes in the form of taxes.
For example, if your company is a C corporation, you may face double taxation (once for corporate income, once on your personal income). This could reduce the amount of money available to build wealth outside your business.

Likewise, given the inherent complexity of the US Tax Code, it’s possible that you’re simply paying more than you must by no fault of your own.
Legally minimizing your tax burden, often with the help of a professional, could give you more capital to invest outside the business. This, in turn, could help you build more value toward the future you envision on your terms.

We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you.

Please feel free to contact us at your convenience.

Don Feldman is the founder of Keystone Business Transitions, LLC, a Lancaster, PA firm devoted to helping business owners smoothly exit their companies. He has been a CPA for over 25 years and a valuation professional for 20 years. For the last 15 years, Don’s practice has focused on succession and exit planning, including transfers of business interests to family members and key employees, as well as sales to outside buyers.

Tips for Small Business Owners to Recession-Proof Their Companies

Preface: Every day, keep your dream in front of you. Building a successful business is a commitment, and it’s work. Remain continually focused on the ultimate goal every day” 

Tips for Small Business Owners to Recession-Proof Their Companies

Credit: Jeffrey D. Conley

The economy is constantly fluctuating and can impact small business owners in a variety of ways. It’s important to be prepared for potential recessions, as they can have a huge impact on businesses. Preparing your business ahead of time can help you manage the effects of an economic downturn and keep your business running strong. In this article, we’ll discuss how small business owners can recession-proof their companies and protect them from economic downturns.

Hold Tight to Your Best People

As economic conditions become increasingly uncertain, organizations should focus on retaining their best people. Keeping talented employees is essential for maintaining a competitive edge during difficult times, especially in terms of innovation and productivity.

Companies should invest in employee development and create programs to retain top performers, such as providing them with specialized training or offer incentives like flexible hours or stock options. Management should also take the time to listen to the ideas and initiatives of their best people and implement those that are feasible and beneficial to the organization.

Cut Debt and Expenses

For small business owners, it pays to be prepared for whatever the economy throws at you. One of the best ways to do this is by cutting back on costs and reducing any debt that has accumulated over time. These actions can help protect your business in a downturn, giving you the financial cushion needed to be able to endure difficult times and keep operations going. By cutting costs and paying down debt now, you’ll be setting yourself up for success no matter what happens in the future.

Consider an LLC Conversion

Converting to an LLC is a wise decision for small business owners looking to prepare for an economic downturn. An LLC in Pennsylvania provides the benefits of a corporation, such as limited liability protection and flexibility in structuring your business, while still remaining relatively simple. Converting to an LLC can also provide tax advantages that can help you save money during uncertain times.

Expand Into New Markets

Expanding into new markets is another great way to prepare for an upcoming recession. By diversifying your customer base and exploring new opportunities, you can protect your business from the economic downturn. But before you take steps to expand your business, Donald J. Sauder, CVA, CPA | Partner, Sauder & Stoltzfus suggests that you ask yourself some important questions: “Are you prepared? Do you have the necessary capital, experience, training, knowledge, ambition, support, and commitment to thrive? Have you truly counted all the costs? Your preparation is the best indicator of your business’s outlook.”

If you’re able, tapping into new markets can help to expand your reach and open up growth possibilities that otherwise would not have been available. Investing the time and resources now to explore new markets can pay off handsomely in the long term, allowing your business to remain stable and thrive during difficult times.

Update Your Marketing Strategy

It’s also important for small business owners to update their marketing campaigns during recessions as people tend to change their spending habits when the economy takes a downturn, explains E-Marketing Associates. Focus on promoting new products or services that cater specifically to people who may need them most during difficult financial times such as students, seniors, or low-income households. These kinds of targeted campaigns will bring in higher returns than traditional advertising methods used during pre-recessionary periods.

Prepare for the Worst but Reap Rewards Instead

By preparing ahead of time, small business owners can minimize any negative impacts caused by recessions while still keeping their companies running strong throughout an economic downturn. Keeping your best employees, reducing debt and cutting expenses, converting your entity to an LLC, expanding into new markets, and updating market campaigns are all great strategies for recession-proofing your company against financial hardship!