Plus: Business basics, small business loans, deducting business meals, estate and gift tax treaties, corporate reorganizations, filing deadlines, tax trivia, and more. |
A year or so after graduating from law school, my husband and I bought a house in Philadelphia. Two years later, we got a dog, which sent me scurrying online to find a dog walker.
My husband had moved over to an AmLaw 200 firm by that point and he was working long hours. I was working for a midsize firm in the city and my hours were just as long. We left home pretty early in the morning and often met to eat dinner out in the City.
We paid someone to clean our house and mow our lawn. We sent out our laundry. And then we were looking for someone to walk the dog. We were outsourcing our lives. And I didn’t want to do that anymore.
So, I convinced my husband to quit his high earning AmLaw job. And I quit my job. And we started our own law firm.
This is not the point where I tell you how everything worked out fine immediately. Because it didn’t. There were a lot of bumps.
Managing your own business is hard. The income is unpredictable. You will make bad decisions. We made bad hiring decisions—including a clerk who used to hide work in a folder and tell us it was done. And we made bad client decisions— including extending credit to a client who was arrested for embezzlement before we got paid.
But we also made great decisions. I loved most of my staff. I kept my own hours. I chose my own clients, and it got a lot easier to say no as we figured things out. And when we had kids, they came to the office which was walking distance from my children’s school—my middle child set up a rival legal advice service in the law firm lobby after school at a very competitive nickel rate.
If you’re a business owner, or if you’ve worked with a business owner, you likely relate to some of my story.
Even though starting and running a small business can be tough, small businesses remain the mainstay of the U.S. economy, creating jobs, millionaires, and in some cases, big companies and billionaires. Diane Hendricks, #1 on Forbes’ new list of America’s Richest Self-Made Women, with a net worth of $22.5 billion, started a roofing supply business with her late husband, Ken, in Wisconsin in 1982. Under her watch, ABC Supply, which she owns and has chaired since Ken’s death in 2007, has grown to more than 900 branch locations and $20 billion in sales.
Today, the U.S. has more than 33 million small businesses, employing nearly 62 million Americans, some 46% of private sector employees. According to the SBA, from 1995 to 2021, small businesses created 17.3 million net new jobs, accounting for 63% of the net jobs created during this period. Underlying that impressive net job growth number, however, are millions of small business births and closures. About one in five of all small businesses fail in their first year and one in two succumb in the first five years.
Our new Forbes Small Business Toolkit aims to help you beat the odds, with information on choosing the right entity, assembling your professional team, filing and paying taxes on time, and managing small business loans. Whether you’re trying to sort out worker classification, figure out how to survive tariffs, or discover the best small businesses to buy now, we’ve got you covered.
One more thing. Tax policy can turn on a dime–that’s been made clear as the House and Senate hashed through the Big, Beautiful Bill. We’re on top of it. With so much uncertainty—and more changes on the way—we suggest bookmarking this Toolkit and checking back for our updates.
Speaking of bookmarking, my stack of books to read keeps piling up, but I’m planning on tackling one this weekend: David Suchet’s Behind The Lens. We’re big Agatha Christie fans in my house and you might recognize the name as the actor who will forever be recognized as Hercule Poirot–it turns out that he’s a history and travel fan like me.
I hope you have something similarly relaxing planned. Enjoy your weekend,Kelly Phillips Erb (Senior Writer, Tax) |
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This week, a taxpayer asked:
I own a business. Can I write off dinner if we talk about business?
Sort of. It’s true that businesses are entitled to a deduction for the costs of meals, but like everything tax-related, there are rules and restrictions.
The business meals deduction is limited to 50% of the meal costs. If that feels smaller than before, it is. During COVID, there was a temporarily enhanced deduction of 100% to support the restaurant industry—that temporary deduction has now expired, and the old rules are back in play.
To be deductible, a meal must be directly related to business, meaning there must be a clear link between the meal and a business activity or purpose. That would apply, for example, to a meeting where you discuss business with a valued client or potential lead. Additionally, either you or an employee of the business must be present when the food or beverages are served—you can't simply offer a steak dinner and walk away.
And speaking of steak, the costs shouldn’t be lavish or extravagant given the circumstances (context matters).
Finally, to claim a deduction for any business expense, Section 162 of the Tax Code requires that the expense be "ordinary and necessary." According to the IRS, an ordinary expense is common and accepted in your trade or business. The IRS defines a necessary expense as "one that is helpful and appropriate for your trade or business." For an expense to be deductible, it needs to be both.
One word of caution: The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. This means that expenses like tickets to sporting events, concerts, or clubs are generally not deductible, even if a business purpose exists. However, if meals are provided at the same time, they may be deductible if purchased or billed separately from the entertainment cost.
As always, keep excellent records. When it comes to meals, you’ll want to include the date, total cost (including tax and tip), name of the restaurant, and details of the business meal (who attended and how it related to your business). An easy way to track? Jot those details on the back of the receipt.
Other meal expenses, including food for company holiday parties and food and beverages provided to the public, may be 100% deductible if they qualify for specific exceptions.
If in doubt about whether a meal or entertainment expense might be deductible, ask your tax professional.
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Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here. |
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Statistics, Charts, and Maps (Oh My!) |
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Foreign investors with assets in the United States often encounter complex estate tax rules that can significantly impact taxation of their U.S. assets at death. If the individual is a non-resident, non-citizen of the U.S., the federal estate tax applies only to assets situated or deemed to be situated within the U.S. (for example, U.S. real property or stock in a U.S. corporation). But the rules can be complex. Understanding how an estate tax treaty may mitigate this tax burden is critical–the U.S. has 15 estate and gift tax treaties with countries worldwide.
Those who are neither U.S. citizens nor residents for estate tax purposes are often surprised by the estate tax rules. Those surprises can include the limited exemption amount, common misconceptions about asset types, the requirement to disclose the value of worldwide assets on their estate tax return, and other pitfalls that can complicate estate planning.
It doesn’t get any easier if you simply give up your citizenship (a la Tina Turner in 2023). In January 2025, the U.S. Treasury issued final regulations on the taxation of gifts and bequests from covered expatriates. These regulations introduced the filing of a new Form 708 to report these transfers-noncompliance subjects the recipients to significant penalties.
Our best advice? If you have questions about your reporting requirements, consult with a tax professional. |
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| As businesses grow, events and circumstances often lead them to consider major changes in their business model. This often results in what’s referred to as a reorganization and includes transactions like mergers and acquisitions, spinoffs and split-offs, and recapitalization. While there may be many reasons for a company to consider a reorganization, one of the goals is typically a tax-favored outcome. With some planning, a reorganization may be tax-free. A goof, an oversight, or a misstep can result in a big tax bill. How big? Try $4 billion. That’s how much the IRS assessed in taxes, penalties, and interest on Yum! Brands. Yum! Brands is the parent company of KFC, Taco Bell, Pizza Hut, and Habit Burger & Grill. The company touts over 61,000 locations in 155 countries. On November 30, 2013, Yum! Brands publicly announced a corporate reorganization. In this reorganization, the company would no longer be broken out into segments based on geography. Instead, it would focus its organization based on brands (i.e., KFC, Taco Bell, and Pizza Hut). It would also have separate divisions for China and India. The goal of this reorganization was to drive growth. To help facilitate the reorganization, the new subsidiaries issued stock in exchange for stock in the previous subsidiary. This stock for stock reorganization often falls under the section 368(a)(1)(B) of the tax code, which allows for the acquisition of a corporation solely in exchange for all or part of its voting stock. Yum! Brands thought that the conditions under Section 368(a)(1)(B) were met, which would defer the gain, allowing the reorganization to make more sense from a financial perspective. The IRS disagreed and issued a bill for $4 billion: $2.1 billion in taxes, $418 million in underpayment penalties and over $1.5 billion in interest. The matter has moved to court where it’s expected that many companies and advisors will be focused on the outcome. |
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Tax Filing Dates And Deadlines |
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