What Ever Happened to the Two Martini Lunch?

A long, long, time ago I worked in food service hustling drinks and huge plates of food to luncheon guests. I was always amazed at how much these guys could consume and continue working the afternoon! Who knows if any really did?

At that time business meals where 100% deductible as a taxable business expense. Under President Reagan the Tax Reform Act of 1986 changed that and the deductible percentage dropped to 80%. The food service industry went into a tizzy believing that their business would drop accordingly with the change in tax law. (That year I abandoned the food and beverage industry, purchased a 12-year-old Model 5 Eagle, and went into the bus business!) The Revenue Reconciliation Act of 1993 under President Clinton brought the deduction to 50% as of January 1, 1994. Not much has changed since then until President Trump passed the Tax Cut and Jobs Act of 2018.

So, what happened to the Martini Lunch? It most likely became the Craft Beer or Cabernet Lunch as tastes have changed. However, while assisting industry bookkeepers with their work a question still is asked, “Can we expense that pepperoni pizza?” I will let the Nerd fill you in on how this recent Act has changed what business meal, travel and entertainment expenses are tax deductible and what bookkeeping procedures you should put in place to properly record them.

Thank you, Mr. Bus Guy. The good news is that business meals are still partially deductible. Meals in which one conducts business with current clients, potential clients, networking sources, and meals while traveling for business are all still 50% deductible*. The IRS cautions these costs should not be “lavish” or “extravagant.” However, entertainment such as baseball games, concerts, and similar types of events are no longer deductible. Those are now reported for income tax purposes as “non-deductible expenses” and do not decrease the taxable income of the entity**.

Let me make another distinction here. Sometimes when food is provided, the entire expense can be written off. Meals provided as a part of an employee training event or meeting are fully deductible***. Additionally, meals and food provided for the convenience of the employer are also fully deductible. Do you keep beverages and snacks in the office for employees? Do you buy pizza for the staff when they are working late? Fully deductible!

To keep from having to look at this in detail at year end, I recommend tracking the three types of expenses separately during the year. Generally, this means having three different accounts:

  1. *Entertainment – not deductible for tax purposes
  2. **Meals – 50% deductible for tax purposes
  3. ***Meeting Meals (or just include with general meeting costs) – 100% deductible for tax purposes

This will have your books in order and ready for reporting Meal and Entertainment expenses properly to the IRS.

Let us at BUSBooks help you set up your books, giving you the peace of mind to manage your business! Together we can make your accounting more meaningful.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Something Better Than Cash…

What could be better than cash? Cash is king, right? It warms your pocket and always looks hot on TV when C-notes are expressed after a quick lick of the thumb. But in the not so exciting world of accounting, Cash is best left in the bank and Accrual is the cool way to go. Let the Nerd explain.

Cash Basis accounting is the simplest form of accounting. Revenues are recorded when received and expenses are recorded when paid. But does that really tell you the whole story? Who owes you money and how much do they owe?  How much do you owe your vendors?  How much of what you think is income is not because the trips you collected on do not operate until next month? Did you have net income in that dreadful month you wrote the big insurance check even as your checking account took a nose dive? You may have, and the answer to knowing how lies in the manner of your accounting.

Merriam-Webster’s definition of accrual: “relating to or being a method of accounting that recognizes income when earned and expenses when incurred regardless of when cash is received or disbursed.”

Accrual Accounting is a little more work, but it provides better information from which to run your company. Yes, we at BUSBooks can assist with that. And once you set it up your bookkeepers can easily follow the process. 

Key accounts that are involved with accrual accounting are accounts receivable, prepaid insurance, prepaid expenses, accounts payable, customer deposits, and accrued expenses. These accounts help track the revenues and costs that apply to a specific period. This allows your financial reports to reflect how your company is performing NOT just the effects of your back accounts.  

For example, some expenses are significant and only paid once or twice a year. These heavy hitters may include vehicle insurance and registration, property taxes, and workers comp policies. Accrual Accounting equally distributes these expenses throughout the entire life of the policy, fee or tax. If you use the Cash Basis accounting method, the expenses paid only one or twice a year only effect the time period in which they are paid and therefore distorts your actual net income.

Accounts Payable (A/P) and Accounts Receivable (A/R) are important balance sheet accounts used in Accrual Accounting. The A/P records the amount of money you owe your vendors at the close of the balance sheet, most likely the month end. The goods and services are expensed in the period they are received, and if not paid in that same period, are recorded in the payable account where they remain until paid. On the balance sheet the A/P is a current liability.

The A/R records amounts earned and billed, but not yet paid to you at the close of the period. Deposits and payments received by your company for work not yet performed at the close of the period reduce A/R if recorded in the same account. This money is not yet revenue, and therefore does not affect the period’s net income. These accounts are current assets on the balance sheet.

Most companies within our industry have their books already set up on an Accrual Basis. Those that do not eventually need to change over when securing bus loans or lines of credit, or when they attempt to sell the company. And to understand how your company is really performing, the Accrual Basis of accounting is a must.

So how does Accrual Basis accounting interact with your income taxes? It depends. In general, companies with revenues less than $25 million in average revenues over the last three years can use the cash method for reporting income taxes. Many companies and businesses will use this method for reporting for income tax even if they maintain their books on accrual basis. Which method to use for income tax reporting is a separate decision. We at BUSBooks can help you analyze your situation and provide recommendations for your company.

Let us at BUSBooks help you achieve Accrual Basis financial reporting to help manage your business.! Together we can make accounting more meaningful.

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.

Fuel and Excise Taxes

Eureka! What a revelation this was way back when my hair wasn’t so grey. I have pictures to prove that, the not-grey thing. Anyway…the day I learned that the IRS was prepared to return me money was a Eureka moment. You see, 33 years ago I was unaware of such things. I was also unaware that I needed an MC number to operate, or gear oil in my wheel hubs. Imagine that!

The fact is we hear that some new operators entering our industry are unaware as well. No worries, we can fix that.

You are eligible for a federal diesel fuel tax credit if any part of your bus operations includes intercity or local transportation, or the transportation of students or school employees. These credits are based on the number of gallons of diesel fuel your company uses for these nontaxable uses. The rates are 17 cents or 24.3 cents per gallon of diesel, depending what the fuel is used for. In other words, you are due at least 17 cents per gallon of diesel fuel pumped into your buses and motorcoaches. And if you have not filed for such credits, you are eligible to go back three years and file for the credits. These are credits, dollars back to you, not expense deductions.

Your company can file for this credit either quarterly or annually.  If filed quarterly, use IRS Form 720 (https://www.irs.gov/pub/irs-pdf/f720.pdf).  If you choose to file annually or you are late filing the quarterlies, use Form 4136 and file it with your annual income tax return. This form can be located at https://www.irs.gov/pub/irs-pdf/f4136.pdf.

Make sure you track the school purposed miles so you can use your average MPG to determine the gallons used for school runs which has the higher credit rate of 24.3 cents per gallon. The school runs are not limited to yellow bus mileage. Your motorcoaches used for school activity are include as well. Contact BUSBooks for assistance.

Your national and regional bus and motorcoach associations work hard to keep this industry benefit from extinction. Contact your association for information for what you can do to help.

How about tires? Are you paying the federal excise tax on tires used for intercity, local or school buses?  You do not need to! Apply for a federal excise tax exemption number from the IRS. Once received, providing that information to your tire retailer will allow you to purchase and lease those tires without paying the federal excise tax. There is no reason to pay that tax if you are exempt from it! Save over $50 on a typical bus tire, or $400 on a full set. Receive more information from your tire retailer who will be happy to assist.

Let us at BUSBooks guide you in obtaining tax benefits that are available to your company right now!

Written by Tracy Fickett, CPA and Peter Shelbo, Veteran Bus Operator

BUSBooks is a unique CPA accounting firm dedicated to the motorcoach industry.