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WHEN IS GOLF DEDUCTIBLE?
DECEMBER 2002

If you understand the tax rules you may be able to get Uncle Sam to pick up the tab for some of your golf. Start by obtaining a copy of IRS Publication 463 (Travel, Entertainment, Gift and Car Expenses available at www.irs.gov). If entertaining with a round of golf is accepted in your business and is helpful and appropriate, your golf qualifies for a deduction. According to the IRS the green fee (and related expenses) must be “directly related” or “associated” with business.

Use common sense when figuring out what these terms mean because, surprisingly, that’s what the government does. A dental-supply salesman can take three dentists out for a round, but a lawyer cannot deduct club dues and fees because he has clients at the club or prospects for business there.

If you qualify for the deduction, you can write off 50% of the cost of golf, meals, and other entertainment expenses. There is a limit on business gifts of $25 per person, so you can buy a client a sleeve of balls but not that $500 driver he’s been hankering for. Exceptions to the 50% limit include entertaining at charity golf events and distributing promotional items.

These rules apply whether you are the employer, the employee, or self-employed. The business can take these deductions by reimbursing the employee. If the business does not reimburse the employee, the employee can take the deduction personally by completing Form 2106.

Participating in a charity involved in spreading access to golf (see “Giving Back to the Game”, right) gives you an opportunity to help out by doing something you enjoy. Deducting the cost from your taxes as charity is a welcome bonus.

But not all golf-related charities are created equal. Contributions to Section 501 [C] (3) charitable organizations are fully deductible, contributions to others only partially deductible. To qualify, the charity must have no expenses; volunteers do the work and get all supplies for free. Reputable charities will tell you what percentage of your donation is deductible. Accurately deducting is your responsibility, so ask for proof of the organization’s 501[C] (3) status or its expenses to determine the portion of the contribution you can deduct.

SNAG BIG WRITE-OFF ON EQUIPMENT PURCHASE

Most business equipment is depreciable over either five or seven years. Usually, this means a first-year deduction of only 20% of the cost for five-year property and about 14% for seven-year property. Don’t settle for that.

You can grab an immediate depreciation write-off for up to $24,000 worth of business equipment purchased in 2002. This special break is the so-called Section 179 deduction.

Even equipment purchased and put to use at year-end is eligible. But this is a “use it or lose it” tax break. So if you buy $14,000 worth of equipment this year, you can’t take the unused $10,000 and add it to next year’s Section 179 deduction limit.

To qualify for this special write-off, the equipment must be purchased, not acquired via trade-in or lease, and must be used more than 50% for business. Both new and pre-owned stuff is OK. Only the business-use percentage can be written off. You can use this Section 179 write-off to deduct new SUVs, pickups and vans that have a gross vehicle weight rating above 6,000 pounds and are used more than 50% for business.

PULL BUSINESS EXPENSES INTO 2002, PUSH INCOME OFF ‘TILL 2003

Many small businesses use cash-basis accounting, which gives them flexibility to minimize 2002 taxes by deferring income and accelerating expenses at year-end.

Expenses. If you’re a cash-basis taxpayer, you can claim deductions in 2002 for business expenses that are charged on credit cards before December 31, even though the actual bills are not paid until sometime in 2003. (This doesn’t apply to revolving accounts at stores).

In the same way, you can write off expenses paid with checks mailed before December 31, even though they may not be cashed until 2003. To lock your deduction, get a record of the mail date by sending any large year-end checks via registered or certified mail.

Income. With income, the general rule for cash-basis taxpayers is this: Don’t report it until you receive cash or checks, whether by hand or through mail. The date of receipt is what counts, not the date checks are deposited.

That’s why it’s legitimate to put off receiving income checks by waiting to send out invoices until late December. That ensures you won’t be paid until 2003. However, if a check is available to be picked up across town before year-end, or if you simply don’t pick up checks sitting in your mailbox until January, the IRS will say the income belongs in 2002.

Prepaying your 2003 expenses. As long as the “economic benefit” from an expenses lasts 12 months or less, you can claim a 2002 deduction for the full amount of expenses prepaid this year.
Say you prepay a three-year subscription on December 28. You can deduct one-third of the cost (12 months) on your 2002 return.
The IRS may want you to capitalize the remaining two-thirds over the next two years. But a two-year old Tax Court case says you can generally deduct the whole amount in 2002 if you get a meaningful price break by prepaying.

RECORDKEEPING RULES:KNOW WHAT TO KEEP-AND FOR HOW LONG

As a rule, keep financial records and books as long as the information may be “ material in the administration of the income tax laws”. In most cases, the IRS has three years to audit your return. You can also file an amended return within those three years. But the IRS has up to six years if you understate your income by more than 25%. The statute of limitations doesn’t apply if fraud is involved or if you fail to file a return. Because it is difficult to know what to save and what to pitch, below is a quick guide.

*Forever if you use last in, first out method (LIFO)