Category: Taxation

It’s almost here. Thanksgiving! You can practically smell that coma inducing meal in which you are about to partake. And if you are anything like me, you naturally start to think, “Can I deduct a turkey leg?”

To explore this important topic, I sat down with our friend AI. Here’s how that went:

Me: I want a play a game that goes like this: I suggest a scenario in which I purchase a turkey leg, and then you tell me whether or not I can deduct that purchase, based on your knowledge of US Tax Law. Then we’ll move to another scenario with a different fact pattern. Sound good?

AI: Absolutely, let’s play! I’ll use the relevant tax rules, including the Internal Revenue Code and Regulations to provide clear, concise answers. Feel free to suggest your scenarios, and I’ll let you know if the turkey leg purchase is deductible. Fire away with your first scenario!

Scenario 1:

I purchased a turkey and found someone in my family to cook it. My family sits down to enjoy the turkey, and I eat the turkey leg. Can I deduct the cost of the turkey leg?
Answer: No, you cannot deduct the cost of the turkey leg because it is a personal expense, and personal food consumption is not deductible under U.S. tax law.

Scenario 2:

I purchase a turkey leg and donate it directly to a church, school, or 501(c)(3).
Answer: Yes, you can deduct the cost of the turkey leg as a charitable contribution, provided you keep proper documentation, such as a receipt or acknowledgment from the organization, and the organization is a qualified 501(c)(3).

(NOTE: This would be an itemized deduction. With the standard deduction so high currently, fewer people itemize, but I suppose if you donate enough turkey legs to charity, you could get there.)

Scenario 3:

There’s a guy on the street holding a sign that says, “I’m hungry, please help.” I give him a turkey leg.
Answer: No, you cannot deduct the cost of the turkey leg. While generous, gifts to individuals, including those in need, are not tax-deductible because they do not meet the requirement of being made to a qualified charitable organization under U.S. tax law.

Scenario 4:

I take a potential client out to a restaurant and buy him a turkey leg.
Answer: Yes, you can deduct 50% of the cost of the turkey leg as a business meal expense, provided the meal has a clear business purpose and you maintain proper documentation, such as a receipt and records of the business discussion.

Scenario 5:

I see my client at the restaurant and I buy her a turkey leg, but neither I nor an employee of mine stick around to watch her eat it.
Answer: No, you cannot deduct the cost of the turkey leg. For a business meal to be deductible, you or an employee must be present during the meal. Without your presence, it does not meet the requirements for a business meal deduction.

Scenario 6:

I take my client to a football game. While there, I purchase a turkey leg. I have a separate receipt for the turkey leg.
Answer: No, you cannot deduct the cost of the turkey leg. While meals can sometimes be deductible during entertainment events, the cost of the ticket or event itself is nondeductible, and the IRS generally disallows deductions for meals closely associated with entertainment unless they are billed separately by the venue and meet business meal criteria.

(NOTE: AI came to the wrong conclusion on this one, which I point out later in our conversation.)

Scenario 7:

I take my client to a restaurant owned by Wolfgang Puck and buy a $5,000 turkey leg.
Answer: Yes, you can deduct 50% of the cost of the turkey leg as a business meal expense, as long as it is for a legitimate business purpose, you or an employee are present, and proper documentation is maintained. However, the extravagance of the expense could be scrutinized by the IRS under the “lavish or extravagant” standard, which might limit the deduction if deemed unreasonable.

(NOTE: No offense to Wolfgang, but in my opinion, no turkey leg is worth $5,000. It’s absolutely lavish or extravagant.)

Scenario 8:

We have a Thanksgiving party at the office for all of the employees. Everyone there gets a turkey leg.
Answer: Yes, you can fully deduct the cost of the turkey legs as an employee benefit expense, provided the party is for the benefit of your employees and not just for select individuals (e.g., highly compensated employees). Meals provided for employee events like these are generally 100% deductible.

Scenario 9:

As a reward for meeting sales goals, I pay a bonus to an employee. The bonus is in the form of a turkey leg.
Answer: Yes, you can deduct the cost of the turkey leg as a business expense because it is considered employee compensation. However, the value of the turkey leg must be included in the employee’s taxable wages and reported on their Form W-2.

Scenario 10:

I have to pay a subcontractor for services performed for my business. The subcontractor accepts cash, credit cards, PayPal, Zelle, and turkey legs. I pay the subcontractor in turkey legs.
Answer: Yes, you can deduct the cost of the turkey legs as a business expense because they are payment for services rendered by the subcontractor. However, you must report the value of the turkey legs paid to the subcontractor on a Form 1099-NEC, assuming the value exceeds the reporting threshold and other reporting requirements are met.

Scenario 11:

I’m giving out turkey legs as gifts for clients.
Answer: Yes, you can deduct the cost of the turkey legs as a business gift, but the deduction is limited to $25 per recipient per tax year. Any amount over $25 per recipient is not deductible. Proper documentation of the recipients and business purpose is required.

Scenario 12:

I purchase a turkey leg with the intent of taking a picture of me holding the turkey leg, which picture will be used on my website featuring a blog post where I ask AI a series of questions about whether or not I can deduct the cost of the purchase of a turkey leg under several different scenarios.
Answer: Yes, you can likely deduct the cost of the turkey leg as a business expense because it is being used directly for marketing and promotional purposes in connection with your business. Ensure you document the purpose and retain receipts to substantiate the deduction.

 

Me: That was fun. I do think you got one wrong though, regarding the turkey leg purchased at the football game. Are you familiar with Internal Revenue Regulation 1.274-11? Specifically 1.274-11(b)(1)(ii)?

AI: You are absolutely correct, and thank you for pointing that out! Under Treas. Reg. § 1.274-11(b)(1)(ii), food and beverages provided at or during an entertainment activity are not considered part of the nondeductible entertainment expense if they are purchased separately or their cost is stated separately on the receipt. This means that if you purchased the turkey leg at the football game and have a separate receipt or the cost is itemized on a combined bill, the cost of the turkey leg would qualify for the 50% business meal deduction under the general meal expense rules.

AI: My earlier answer overlooked this nuanced provision. I appreciate your thorough reference and careful reading of the regulation. That was indeed fun and insightful—thank you for engaging! 😊

And there you have it. Now hopefully you can enjoy your thanksgiving meal having had all of your turkey leg tax deductions answered.

Happy Thanksgiving!

If you’re a small business owner and you hire your children this summer, you may be able to secure tax breaks and other nontax benefits. The kids can gain bona fide on-the-job experience, save for college and learn how to manage money. You may be able to shift some of your high-taxed income into tax-free or low-taxed income, and, depending on the situation, you may realize payroll tax savings. Perhaps best of all, your kids will spend time with you.

A Legitimate Job and Tax Savings, Too

If you hire your child, you’ll get a business tax deduction for employee wage expenses. In turn, the deduction reduces your federal income tax bill and possibly your self-employment tax bill and your state income tax bill if they apply. However, for the wages to be a deductible business expense, the work performed by the child must be legitimate and the child’s pay must be reasonable.

Let’s say you operate as a sole proprietor in the 37% tax bracket. You hire your 16-year-old daughter to help with office work full-time during the summer and part-time in the fall. She earns $10,000 during 2024 and doesn’t have any other earnings.

You save $3,700 (37% of $10,000) in income taxes at no tax cost to your daughter. That’s because she can use her $14,600 standard deduction for 2024 to completely shelter her earnings.

Your family’s taxes are lower even if your daughter’s earnings exceed her standard deduction. Why? The unsheltered earnings will be taxed to her beginning at a rate of 10% instead of being taxed at your higher rate.

Reduced Payroll Taxes

If your business isn’t incorporated and certain conditions are met, your child’s wages are exempt from Social Security, Medicare and federal unemployment taxes. Your child must be under age 18 for this to apply (or under age 21 for the federal unemployment tax exemption). Contact the office to learn how this works.

Be aware that there’s no payroll tax exemption for employing your child if your business is incorporated or is a partnership that includes nonparent partners. And payments for the services of your child are subject to income tax withholding, regardless of age, no matter what type of entity you operate.

Extra Time to Make Your Child’s Retirement Garden Grow

An early start on saving for retirement can be key to building wealth. A child who earns income from a job can contribute to a traditional IRA or a Roth IRA and begin funding a nest egg. For the 2024 tax year, a working child can contribute the lesser of his or her earned income or $7,000 to a traditional or Roth IRA. And the money may be tapped penalty-free for certain eligible reasons, such as paying education costs and making a down payment of up to $10,000 on a first home.

What if your business has a retirement plan? Depending on its terms, your child may qualify to begin earning retirement benefits that can grow for many decades.

The Importance of Accurate Records

Hiring your child can be a tax-smart idea. Be sure to keep the same records (such as timesheets and job descriptions) as you would for other employees to substantiate the hours worked and duties performed. Also issue your child a Form W-2. Contact the office with questions about how these rules apply to your situation.

If you received a large refund this year, you may want to adjust your withholding. Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there’s a way to begin collecting your 2024 refund now: You can review the amounts you’re having withheld — and any estimated tax payments you’re making — and adjust them to keep more money in your pocket during the year.

 

Choosing to Adjust

It’s particularly important to check your withholding and/or estimated tax payments if you have:

• Received an especially large 2023 refund,
• Gotten married, divorced or added a dependent,
• Bought a home, or
• Started or lost a job.

Withholding or estimated tax payment changes might also be warranted if your investment income has changed significantly.

 

Making a Change

You can modify your withholding at any time during the year, or even more than once a year. To do so, simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can adjust each time quarterly payments are due.

While reducing your withholding or estimated tax payments will put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax throughout the year on a timely basis, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the deadline in April 2025.

 

Getting Help

One reason to consider adjusting your withholding is the passage of any new tax legislation. For example, several years ago when the Tax Cuts and Jobs Act was enacted, the IRS needed to revise withholding tables to account for the increased standard deductions, suspension of personal exemptions, and changes in tax rates and brackets. If you’d like help determining your withholding or estimated tax payments for the rest of the year, please contact the office.

 

If you employ a household worker who isn’t an independent contractor, you may be required to pay employment taxes on the worker’s cash wages. This is commonly referred to as the “nanny tax.”

In 2024, when a household employee’s cash wages reach at least $2,700, you must pay the employer share of Social Security (6.2%) and Medicare (1.45%) taxes and withhold the employee share of these taxes (also 6.2% and 1.45%, respectively). You aren’t required to withhold federal income tax, but you must pay federal unemployment tax on wages of $1,000 or more. This tax is assessed only on the first $7,000 of wages paid.

To pay these obligations, increase your quarterly estimated tax payments or increase withholding from your wages. Additional requirements will apply when you file your tax return for the year. Contact the office with questions.

Did you file your 2023 tax return and then realize you’d made a mistake? Perhaps you completed your return yourself and made an error in math or neglected to include a schedule that should’ve been attached. Or maybe you recently remembered some large, potentially deductible, charitable donations you’d made in early 2023 that you’d forgotten to tell your tax professional about. Now you may be wondering if you need to file an amended return.

Taxpayers usually don’t need to file amended returns for certain issues. For example, the IRS will correct any math errors while processing tax returns and notify the taxpayers. And if a form or schedule is missing, the tax agency will send a letter requesting it. Certain other changes, however, require an amended return to be filed. They include: a change of filing status, missing income, incorrect deductions or credits, and an inaccurate tax liability. Contact the office for help filing an amended return.