Coffee and snacks- every employee appreciates having these items available to them. How have you classified your coffee and snacks in the break room? Have they been listed as meals and entertainment? If you answered yes, then this is costing you money. It is wise to review your policies periodically to make sure you’re properly classifying the fringe benefits you provide to get the maximum tax deduction allowed.
All of those snacks and cans of coffee received only 50% of the deduction they were entitled to. This means you paid more taxes that you didn’t need to pay. Generally, only 50% of the meals and entertainment expenses are deductible on your federal income tax return. However, if you have been providing these for your workers on your business premises, then they qualify for 100% deductibility. Separating the expenses makes it easier to determine the proper tax treatment.
Health insurance premiums may also require separate accounting. For example, when you own more than 2% of the stock of an S corporation, premiums you pay for your policy must be reported on your W-2 form at year-end as part of your wages.
The health insurance premiums you pay for your employees are generally not included in wages, though they may be reported on Form W-2.
Fringe benefits can be a valuable tax break for your business. To be deductible, they must be an ordinary and necessary business expense and meet certain other requirements. So stop what you are doing and go through this year’s books to make sure that you have them properly classified so that you can claim 100% of those costs on your federal tax return. It’s your hard earned money, don’t give it to Uncle SAM if you don’t have to!
If you are not sure how to go about this, then email us today. Together we can put more money back in your pocket where it belongs.