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Are Your Office Snacks Increasing Your Business Taxes?

Tax Reform brought a 21% corporate tax rate.

To help corporations save on taxes, Congress had to reduce or eliminate certain deductible expenses for individuals and businesses.

Among, the change is that under Federal law, occasional snacks (such as coffee, doughnuts, etc.) are only 50% tax deductible.

Tax Tip: Make sure you analyze your purchases for fully deductible expenses (non-edibles) versus 50% deductible expenses (snacks and beverages). Non-edibles such as utensils, napkins, coffee liners and paper towels would still qualify as fully deductible office expenses. For a large business, these non-edibles can be tens of thousands of dollars each year.

Tax Tip #2: While analyzing your purchases, make sure sales tax was paid correctly. If sales tax was not imposed a business has the liability to pay use tax. Certain states exempt groceries from sales tax for home consumption only and tax groceries bought for businesses.

In one case, I remember a Denver use tax auditor saying a business did not pay sales tax on milk and dairy creamer since only individuals were exempt from sales tax. Although the actual sales tax that wasn’t paid was quite small, the unreported use tax was high as auditors generally extrapolate an error rate from a test sample to your entire population of expenses.

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Richard Pon CPA, CFP