This may have your writing coach, or business etiquette mentor twitching, but don’t mix social comments on any document that you submit to a tax agency. As long as you are serious about minimizing your over burdensome taxes, this article will make complete sense to you. If it seems fuzzy or unclear, call me and I’ll clear it up.
I have seen disastrous results from changing the tone of your emails from business to social. This may seem a bit over burdensome to you, so only read on if you don’t create so much money that you don’t care about giving FREE money to whatever government agency that you think will do a wonderful job of redistributing your dollars. You need to keep your communications with the tax agency dry, cryptic, and boring.
Since my primary business is exempting clients from California Taxes on aircraft and vessels, that is where my examples will originate. Applying this type of scrutiny to all your tax documentation can save you countless tax dollars.
Always treat any tax agency as the enemy when it comes to the documentation you provide them. I’m not impugning all the good and decent people that have made careers working to assist the government in tax collection. I am merely attempting to shift your viewpoint to the degree that your “social comments” can create tax liability. Have you ever heard the term of “unintended consequences”?
Think about the following examples if you had to provide the actual email but redact all the personal info. As you can see this would create serious questions regarding your hope the exhibit provides support for your point of view. More black bars would cover sentences than there would be white space. How suspicious were you when you saw some politician’s email that was almost completely redacted? How far would you get if you claimed those sentences were regarding “national security”? The tax auditor would be giggling while she denied your claim.
As an example, let’s say you are documenting a business meeting with Bob Smith in Montana. The safe thing to say is “this email is to confirm our meeting to discuss the Bridgewater Project near Billings. I will forward the complete proposal by the end of next week”.
As we tend to do business with friends this email could morph into the following, “this email is to confirm our meeting to discuss the Bridgewater Project near Billings. We need to meet more often as the cigars and whisky that we enjoyed the first night with our guide Fritz made the stay in his hunting lodge extra enjoyable. My wife said that although she doesn’t like the smell of cigars, watching us three old codgers consume so much whiskey that we slept most of the following day was laughable. Your wife and son did make the comment that it will take you at least a week to come out of the fog. Once my head clears I look forward to searching through my files so I can find the project proposal and forwarding it by the end of next week. LOL”
The above email could cost you some of the deductible expenses on your aircraft, including a portion of the depreciation. While the IRS was touting that they were going to give the aviation industry some benefits in accelerated depreciation, they were simultaneously working to take it away. The 2004 Jobs Creation Act requires that aircraft owners allocate their aircraft expenses on a seat by seat basis between 1) legitimate business use and 2) entertainment use (where entertainment includes entertainment, amusement and recreation). The aircraft owner is now forced to substantiate the business purpose for each person on the flight-- backed up with good documentation-- to support the actual business reason for each person travelling to that destination.
The additional details provided in the second example above would likely allow the IRS to disallow any deduction for that flight. Additionally, if you used these same details to support a business use exemption from a State’s sales/use tax, you may lose that exemption altogether.