Question

A professional client for whom you have acted for many years has provided documents and claims for an overseas trip that was taken to attend a conference. You have prepared the tax return on the basis of that information. When the client comes in to sign the tax return they talk about the overseas trip and show you photographs of the family holidaying around Europe after the conference. What do you need to do? (100–120 words)

Answer 1

This is important that any expense that is deducted from the income of the business should be legitimate that is the expense should be that expense which is required in the ordinary course of business and expense is required to run the business.

This is necessary to note that the expenses are allowed to deduct only if the expenses are for the business and not for the personal benefit of the individual.

If any of the expenses that are deducted from the income or the tax return and that are for personal expenses this can land the tax payer in trouble and IRS can impose certain penalties on doing this.

So in this case if the client has made expenses on attending the conference then this should be allowed as this is for the business expense but this is important that what expenses should be allowed as business expenses and what expenses should be disallowed.

In this case it is important that any expenses that is incurred after the conference is attended or on holidaying of the client that should not be deducted from the business incomes as this is the personal expense of the client and this should be claimed on the personal tax return.

Personal expenses can be segregated from the total expenses made on the trip in the following ways.

• Segregation

In this case the business and personal expenses are segregated

• Proportionate

If segregation is not possible then proportionate expense methods is used

• Communication

In this case ask the client about which expenses are made for holidaying and use your due diligence

• Time

This is important that any expense that is incurred after the seminar is attended should be one made for personal benefit. For example is seminar ends today and clients stays there for 2 more days, this implies that the 2 days must be for personal time and personal expenses.

After making sure that what expenses are for the personal benefit or what expenses are not for the business, such expenses should not be deducted from the income of the business and should be disallowed.