Business trips that mix business with pleasure
 

Despite better communications by teleconferencing, faxes and the Internet, business travel has increased dramatically over the past several years. In addition, many taxpayers are beginning to plan trips that combine elements of both business and pleasure. Business trips, conventions, and continuing education seminars are frequently planned to incorporate exotic locations and leisure time. With proper planning, these trips can yield great personal pleasure while at the same time generate legitimate deductions. Although the basic rules are relatively simple, there are a number of angles in this area that you might be interested in knowing.

Business Travel - Taxpayers who travel away from their tax home on business are permitted to deduct travel expenses, including fares, meals, lodging, and incidental expenses, if they are not otherwise lavish or extravagant. A business trip is "away from home" if it takes enough time that the taxpayer may be reasonably expected to need sleep or rest. A taxpayer's tax home is his regular or principal place of business, or his regular abode if he has no regular or principal place of business. Naturally, you are not prohibited from enjoying nonbusiness or personal activities while on a business trip, but the primary reason for the trip must be related to your trade or business.

Foreign Travel - Foreign travel expenses are subject to some limitations that are not applicable if the business trip is within the United States. Some of an individual's foreign travel expenses may not be deductible if he or she takes part in substantial nonbusiness activity during the trip. Taxpayers who travel outside the U.S. for longer than one week or spend less than 75 percent of their time on business are subject to allocation rules, which operate to partially disallow their expenses, unless they had no control over the trip arrangements or the vacation portion was not a major consideration of making the trip. The general rule is to allocate expenses, including meals and lodging, between business and nonbusiness on a day-to-day basis. Each day is either entirely for business, or it is considered to be a nonbusiness day. A day counts as entirely for business if the taxpayer's principal activity on such day was the pursuit of a trade or business. In addition, a day is counted as a business day if any of the following factors are present:

The individual was traveling to or from an overseas destination in pursuit of a trade or business.
The individual's presence outside the U.S. on that day was required at a particular place for a specific and bona fide business purpose.
The individual was prevented on that day from engaging in the conduct of his or her principal business activity due to circumstances beyond his control.
The day was a Saturday, Sunday, legal holiday or other reasonably necessary stand-by day, which intervened during the course of the taxpayer's trade or business.
Educational Travel - The tax law expressly prohibits deducting expenses for travel as a form of education. Nevertheless, a recent Tax Court case allowed a school teacher to deduct her travel and tuition costs related to two university courses overseas. There, the court found that the educational activities engaged in by the taxpayer went beyond mere travel and helped her maintain and improve skills necessary to her employment. The courses were well organized and conducted with regular lectures, extensive assignments, and left her with little free time for personal pleasure. The taxpayer was able to show that the knowledge she gained helped her to develop curriculum materials for the courses she taught. Whether this "business need" may be extended to other
professions or businesses remains to be seen as this case law develops.

Conventions and Seminars - Expenses for both self-employed persons and employees to attend a convention in the U.S. may be deductible if there is a sufficient relationship to the taxpayer's trade or business. However, a special rule prohibits the deduction of any costs of attending conventions or seminars for investment purposes.

Cruise ships - A limited deduction (to a maximum of $2,000 annually) is permitted for conventions on cruise ships if the ship is of U.S. registry, all ports of call are in the U.S. or its possessions, and the meeting is directly related to the taxpayer's trade or business. Rigorous reporting requirements must be satisfied, including written statements by both the attendee and an officer of the sponsoring organization.

Foreign conventions - A foreign convention under the tax law is considered one held outside the U.S., its possessions, the Trust Territory of the Pacific Islands, Canada, or Mexico. The deductibility of expenses for foreign conventions is subject to a higher standard than for conventions held in the U.S. The taxpayer must establish that the meeting is directly related to the active conduct of his trade or business and that it is as reasonable to be held outside the North American area as within it.

For a stateside convention, the taxpayer merely has to show that his business duties and responsibilities are related to the agenda of the meeting even though it may not deal with the specific duties of the taxpayer's work.

Staying Over - Due to airline pricing policies, it is sometimes economical for a business traveler to stay over Saturday night although business was concluded on Friday. The additional lodging expense is frequently more than offset by the lower airfare as a result of the Friday and/or Saturday night stayover. In such situations, the additional meals and lodging expenses for the Friday/Saturday mini-vacation may be written off entirely as part of the deductible as ordinary and necessary expenses of the trip.

If, on a business trip during the week, a certain day is devoted primarily for pleasure, that day's expenses are not deductible. Although this may be a nondeductible expense that the business traveler is willing to pay, you should be careful not to devote over half of the time you spend away from home on pleasure. In such a case, none of the transportation expenses getting to and from the location are deductible. On the other hand, if more than half of the trip is devoted to business, all of the transportation expenses may be written off as a business expense.

If you have any questions about how the travel rules would apply to any business trip that you anticipate taking soon, please do not hesitate to call.

Reprinted from CCH Smart Tax

Casual labor can be costly for your business
 

Many employers seem to feel that individuals hired on a short-term basis can be paid as casual labor in order to eliminate payroll taxes.

There is no provision in the tax laws to exclude casual labor or part-time labor from payroll taxes. An individual is either an employee or an independent contractor. With independent contractors, you pay a contracted flat rate and have no additional payroll tax obligations. Employees are subject to the normal payroll taxes due to federal and state agencies.

Some employers, in eliminating the payroll taxes, have also failed to cover their help with industrial accident insurance. There is substantial financial risk in having people work for you without proper insurance coverage. Employee health policies and the company’s general liability insurance are not substitutes for industrial accident insurance.

The facts and circumstances determine who is an employee and who is an independent contractor. An individual who works under your supervision, on your premises or job site, with your tools and equipment, is most likely an employee.

Independent contractors usually come and go as they please, use their own equipment, and regularly perform the same type of work for other people as well as for you.

The line between an employee and independent contractor can sometimes be difficult to distinguish, and the financial exposure from misclassifying workers can be significant. If you have questions or need assistance, give us a call.

2002 standard mileage rates
 

The Internal Revenue Service has announced the optional standard mileage rates to use for 2002 in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

The amounts for the various deductible costs for use of a car will be effective January 1, 2002, and are as follows:

The standard mileage rate for the cost of operating a car is 36.5 cents a mile for all business miles driven. The rate for 2001 was 34.5 cents a mile.
The standard mileage rate for the use of a car when giving services to a charitable organization remains at 14 cents a mile.
The standard mileage rate for computing deductible moving expenses or for medical travel is 13 cents a mile. The previous amount was 12 cents a mile.
The primary reason for the mileage rate increases is the rise in gasoline prices during the past year.

Internal Revenue Service collects overdue tax obligations from Social Security
 

Congress passed the Taxpayer Relief Act of 1997 to collect overdue debts to the government. The law authorizes the IRS to collect delinquent federal tax by deducting up to 15 percent of federal payments, including Social Security benefit payments.

Social Security beneficiaries who owe federal tax to the IRS need to pay their debts. If not, the IRS can reduce a beneficiary’s benefit by 15 percent a month to pay the debt. Beneficiaries who owe a delinquent federal tax will receive a notice before the IRS reduces a Social Security Benefit. The notice explains:

the debt amount;
how to pay the debt; and
what to do if the beneficiary cannot pay the debt
Beneficiaries who have questions should call the IRS at 1-800-829-7650. Call within 30 days to arrange to pay the debt or to explain special circumstances, such as bankruptcy. The Social Security Administration can only answer general questions about the reduction of benefits.

There will be no deductions from:

children’s benefits;
benefits undergoing partial withholding to repay a debt owed Social Security;
Supplemental Security Income payments;
lump sum death benefits; or
special age 72 benefits (Prouty benefits).
The Department of the Treasury, Financial Management Service, will reduce benefits in February

2002 and continue until the beneficiary pays the debt owed. Each month, when the money is deducted, the Financial Management Service will send a letter stating:

when the deduction occurred;
the amount deducted; and
how to contact the IRS to discuss the delinquent federal tax debt.

Internal Revenue Service interest rates for fourth quarter
 

The IRS has announced that over-and underpayment interest rates for the calendar quarter starting October 1, 2001 will remain steady – identical to the interest rates that were announced for the calendar quarter starting July 1, 2001. Quarterly interest rates will stay at:

7% for overpayments and underpayments, except for 6% for corporate over-payments
9% for large corporate underpayments, and 4.5% for the corporate over- payments portion that exceeds $10,000.

Employee of the Quarter
by Sheryl Schuster, CPA
 

Our employee of the quarter, Heather Kettell, CPA, graduated from Rutgers University with a BS in Accounting in 1996. After gaining experience with a local accounting firm, she joined our firm in September 1998. She received her CPA designation in 2001 and is a member of the AICPA and the NJSCPA.

Heather performs auditing services for various industries such as healthcare, manufacturing and employee benefit plans. She also provides accounting, tax and consulting services for a diverse client base including law firms and medical practices.

She is a also a member of the firm’s Marketing Committee and coordinates the staff’s involvement in marketing functions. An active member in the community, Heather participates in various outings for charitable organizations such as the American Cancer Society and American Heart Association.

Heather spends much of her spare time in the gym doing aerobics and weight training. Her interests include the performing arts and dining with friends. In the summer, you can find her on the beach in Margate, NJ.

Alloy Happenings
by Brad Sears
 

Ren Cicalese, CPA/PFS lectured on “Management of an Accounting Practice” at Rider University.
Lectured on “Regional CPA Firms as an Alternative to International Firms” at Rutgers University-Camden.
Lectured on “Financial Services in the New Millennium” to the Society of Financial Professionals in Voorhees.
Interviewed and quoted by Cecily Fraser of CBS.Marketwatch.com for her article “A Database of Online Tax Resources”.
Served as a panelist of the “Master Health Care Workshop” as part of First Global’s National Conference in Orlando, Florida.
Awarded the Personal Financial Specialist (PFS) designation by the AICPA.

Steven L. Shapiro, CPA/PFS lectured on investments and financial strategies to Rutgers University-Camden seniors.

Bruce Mulford, CPA/ABV attended the AICPA’s National Business Valuation Conference in Las Vegas, Nevada.

Bill Jones, CPA was reelected Treasurer of the Camden County College Foundation.

Dennis Vogt, CPA co-chaired the Girl Scouts of Camden County’s first annual golf tournament at Medford Village Country Club.

Tom Adams, CPA served as head proctor for the NJSCPA 2001 Scholarship Awards Examination at Rutgers University-Camden.

Congratulations to:
Tony Mackiewicz and his wife Colleen on the birth of their quadruplets, Kaeleigh, Kelsey, Katharyn and Zachary.
Sheryl Tompakov, CPA on her marriage to Mark Schuster.

We are pleased to announce the addition of the following employees to the firm:
Sherry Peng, transferred from a Newark, DE firm.
Bret Stone, transferred from a Camden, NJ company.
Janel Sum, MST, transferred from a Philadelphia, PA company.
Michelle Tursi, transferred from a Moorestown, NJ company.