FAR 32 - Deductions 3 - Employee Business Expense

Question 1

During the 2015 holiday season, Palo Corp. gave business gifts to 17 customers. These gifts, which were not of an advertising nature, had the following fair market values:

  4 at   $ 10  
  4 at   $ 25  
  4 at   $ 50  
  5 at   $100  
How much of these gifts was deductible as a business expense for 2015? 
  A.   $840 
 B.   $365 
 C.   $140 
 D.   $0

Answer 1

B. The deduction for business gifts is limited to $25 per donee per year. The deduction is computed as follows:

  4 at $ 10      $ 40  
  4 at $ 25      100  
  4 at $ 50  limited to $25    100  
  5 at $ 100  limited to $25     125   
    Total    $365

Question 2

Abe Architect owns his own architectural consulting firm. During the current year he incurred the following expenses related to meetings with clients and potential clients:
Meal expenses $2,000
Dues to Five-Star Country Club $5,000
Greens fee for playing golf with clients $1,500
Tickets to Super Bowl (face value = $1,000) $3,500
What is the amount of deductible expenses for the current year related to these expenditures?
A. $ 2,250
B. $ 4,500
C. $ 3,500
D. $ 12,000

Answer 2

A. Dues are not deductible. All of the other expenses are deductible but subject to the 50% limitation for meals and entertainment. Note that the deduction for the Super Bowl tickets is limited to the face value of the tickets, before the 50% limitation. The allowable deduction is $2,250 (($2,000 + $1,500 + $1,000) x 50%).