This may have your writing coach, or business etiquette mentor twitching but don’t mix social comments on any document that you submit to a tax agency. As my primary business is exempting clients from California taxes on aircraft and vessels, that is where my examples will originate, but applying this type of scrutiny to all your tax documentation can save you countless tax dollars.
Always treat any tax agency as the enemy when it comes to the documentation you provide them. I’m not impugning all the good and decent people that have made careers working to assist the government in tax collection. I am merely attempting to shift your viewpoint to the degree that your “social comments” can create tax liability.
As an example, let’s say you are documenting a business meeting with Bob Smith in Montana. The safe thing to say is “this email is to confirm our meeting to discuss the Bridgewater Project near Billings. I will forward the complete proposal by the end of next week. “
As we tend to do business with friends, this email could morph into the following:
“This email is to confirm our meeting to discuss the Bridgewater Project near Billings. We need to meet more often as the cigars and whisky that we enjoyed the first night with our guide Fritz made the stay in his hunting lodge extra enjoyable. My wife said that although she doesn’t like the smell of cigars, watching us three old codgers consume so much whiskey that we slept most of the following day was laughable. Your wife and son did make the comment that it will take you at least a week to come out of the fog. Once my head clears I look forward to searching through my files so I can find the project proposal and forwarding it by the end of next week. LOL”
The above email could cost you some of the deductible expenses on your aircraft, including a portion of the depreciation. While the IRS was touting that they were going to give the aviation industry some benefits in accelerated depreciation, they were simultaneously working to take it away. The 2004 Jobs Creation Act requires that aircraft owners allocate their aircraft expenses on a seat-by-seat basis between 1) legitimate business use and 2) entertainment use (where entertainment includes entertainment, amusement and recreation). The aircraft owner is now forced to substantiate the business purpose for each person on the flight — backed up with good documentation — to support the actual business reason for each person travelling to that destination.
The additional details provided in the second example above would likely allow the IRS to disallow any deduction for that flight. Additionally if you used these same details to support a business use exemption from a state’s sales/use tax you may lose that exemption altogether.
As long as you are serious about minimizing your over burdensome taxes, this article will make complete sense to you. If any of this it seems fuzzy or unclear to you, call me and I’ll clear it up. 916-691-9192 extension 108.