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Making the most of your deductions
As companies continue to grapple with how to grow revenues, reduce costs and remain competitive in today’s global economy, corporate tax departments frequently find themselves under increased pressure to manage their effective tax rate. Taxand USA discusses the details.
The M&E (meal and expense) limitation was originally enacted to control perceived abuses of deductions for these types of expenses, but Congress recognised that many M&E expenditures are beneficial to businesses and outlined statutory exceptions that allow for 100 percent deductibility of certain M&E expenditures. The determination of which costs meet these requirements is highly factual and can be labor intensive to identify.
The exceptions that tend to hold the most opportunity for incremental deductions are the primarily social and de minimis fringe provisions. Although these provisions may seem fairly straightforward on the surface, a detailed analysis of these exceptions shows that there are a number of key factual points that must be analysed in order to meet the exceptions.
The information included in the time reporting system or on the documentation must support the exception. Documentation requirements include amount, time, place and business purpose of the expense, as well as the attendees related to the meals and entertainment expense.
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By examining M&E expenses for exceptions to the general 50% tax deduction limitation, most companies will realise an immediate benefit. Because the M&E disallowance is a permanent disallowance, the benefit derived from an M&E review can have an immediate benefit on earnings per share and cash payments.