During the current year, Paul, the vice president of a bank, made gifts in the following amounts:...


During the current year, Paul, the vice president of a bank, made gifts in the following amounts:

To Sarah (Paul's personal assistant) at Christmas $36
To Darryl (a key client) - $3 was for gift wrapping 53
To Darryl's wife (a homemaker) on her birthday 20
To Veronica (Paul's boss) at Christmas 30

In addition, on professional assistants' day, Paul takes Sarah to lunch at a cost of $82.

Presuming that Paul has adequate substantiation and is not reimbursed, how much can he deduct?

IRS Rules on Entertainment and Meal Expenses:

At the end of 2017, new legislation was enacted known as the Tax Cuts and Jobs Act (TCJA). According to the IRS, "The TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation." Taxpayers are still allowed "to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact."

Prior to 2018, according to the IRS, "a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business."

Answer and Explanation: 1

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The total amount allowable to Paul is $94, calculated as follows:

Christmas Gift: Personal Assistant: (Subject to a limit of $25)$25.0...

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Itemized Employee Tax Deductions
Itemized Employee Tax Deductions


Chapter 7 / Lesson 6

This article will focus on the deductibility of unreimbursable employee expenses. It will discuss the criteria by which one can legally claim the deduction under the Internal Revenue Code and include examples.

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