Identifying deductible expenses (Part 2)

Justifiable corporate expenses and frivolous personal expenses can sometimes be hard to differentiate. In a previous article we discussed some expenses that can be deducted from your company’s business profits. Here are a few more valid expenses that you can declare:

Bonuses, remuneration, incentives and gifts

Shareholders have little patience for people, especially those in top management, whose greed far exceeds their managerial abilities in the corporate boardroom, a situation that was so clearly shown with the Hollinger Group. When the main shareholder also happens to be the person running the business, machinations become complex. And this situation eventually falls between the scope of civil, contract, company, and tax law.

Perks

This particular expense also seems to be affected by a sliding scale of acceptance that directly relates to a company’s size and status in society. For example, a small window cleaning company that also operates a loss-making racing stable as a sideline for the business owner’s personal enjoyment will be viewed very differently compared to a major corporation that involves itself with bloodstock investments.

Most company directors fully understand the legal ramifications of their company going a little overboard and shouldering the payment for a single car or a number of cars, gold tie clips, expensive designer business suits, lavish forms of entertainment, and even international business-class travel. But even if these directors claim that they don’t know it, then their accountants certainly do.

Sector specific outlay

The bias for sector specific outlay is not confined to just a certain business sector, it is actually far more expansive. For example, the kind of “normal” promotional expenditure used in sectors like film, television, advertising, fashion of sports entertainment will definitely be seen as a big example of wanton extravagance if it is applied in sectors such as manufacturing, grocery retailing or construction. Another factor that seems to affect this perception seems to be the profitability and margins differences among the two mentioned groups.

To further illustrate this apparent discrepancies in perception, heavy personal spending on behalf of the corporate largesse by a person who deals in high value, high margin goods like art and jewellery and doing this under the name of an international brand could be very well seen as understandable and acceptable. But alternatively, expenditures that would equal those cited previously will not be as easily understood if the person was involved in a company that is not as “glamorous” like one that manufactures pipes or screws.

Bribery issues

One final “issue” that is quite delicate to navigate is the invisible line that separates corporate gratitude from bribery.

From real world examples, an extravagant dinner with an expensive bottle of champagne that is incurred by a movie executive who is negotiating a film deal is usually seen as par for the course. But a cash gift that is given to a supply manager by a company who wants be considered as a supplier for a construction site will immediately be seen as a bribe.

Again, the issue seems to depend on the same factors of sector, company size and status, the circumstances as well as the income and lifestyle of the participants determine what is admissible or not.

Business Issues
Business Plan
Countries
Finance
Marketing
Start up
Strategies
Taxation
Technology


Back