Business meals, travel, and entertainment deductions
Business-Meal Loopholes
The Tax Reform Act of 1986 put tough limits on deductions for business meals and entertainment. Only 50% of these expenses is deductible. The limit applies to food, beverages, taxes, tips, tickets, cover charges, and whatever else you spend for business purposes on eating out and entertainment. All are just 50% deductible.
Even though the value of deducting an extra $1 of business-meal expenses was reduced because of the drop in tax rates, the incentive to get the biggest deduction legally possible still exists.
The Angles
Strategy: Include in your travel plans conventions that provide three meals a day and a speaker at each meal as part of the cost.
Source: Randy Bruce Blaustein, former IRS agent, now a partner of Blaustein, Greenberg & Co., 155 E. 31 St., New York 10016
How To Prove Business Purpose Of Spouse On Company Trip
It’s possible to deduct the cost of taking your spouse on a business trip. The key is to prove your spouse’s involvement in the business aspects of the trip.
Guidelines:
Source: New Tax Traps/ New Opportunities by Edward Mendlowitz, CPA, Boardroom Special Report, Springfield, NJ 07081.
Business-Gift Loophole
An advertising company employed an independent salesman. As favors to prospective customers, he gave out $40,000 worth of tickets to shows and sporting events. The company paid for the tickets and deducted their full cost. IRS position: The company’s expense deduction was subject to the limit of $25 per recipient under the tax law. Court’s decision: The ticket expenses were deductible by the company. The $25 business-gift limitation applied to the independent salesman, not to the company that employed him.
Source: World Wide Agency, Inc., TC Memo 1981-419
Expense Formula Fails
A company had many representatives traveling on the road. It reimbursed their travel costs for transportation, meals, and lodging on a cents-per-mile basis. IRS ruling: The number of miles and employee travels doesn’t give an adequate indication of the amount he/she spends on meals or lodging. Thus, the company’s reimbursement formula in not sufficient to make the reimbursements tax-free.
Source: IRS Letter Ruling 8634029.
Travel and Entertainment Rules
The Tax Reform Act of 1986, as amended, limits deductions for most meals and entertainment to 50% of cost. Moreover, the expenditures qualify as business meals or business entertainment only if business is actually being discussed. Business transportation (air fare, cabs, etc.) remains fully deductible, but travel to investment seminars or investment conventions is not.
Here’s a checklist showing the deductibility of some common travel and entertainment expenses:
Type of expense Deductible
Or after the meal…………………………………………………………50%
Cab fare to restaurant…………………………………………………….100%
No business discussed……………………………………………………None
Lodging in Chicago………………………………………………………100%
Meals in Chicago (alone)…………………………………………………50%
Meals with customer, no business discussed:
a. Your meal………………………………………………………...50%
b. Customer’s meal………………………………………………….None
Meals in L.A………………………………………………………………50%
Lodging in Houston……………………………………………………….None
Cab fare to game…………………………………………………………..100%
Food and drink at game……………………………………………………50%
Hosting customers; business discussed……………………………………50%
Trooper Costs
Minnesota State Troopers were required to take their on-duty meals in public restaurants to maintain public visibility. When off duty, they were required to make sure their patrol cars were parked off the street. Steven Pillsbury and Karl Christey were troopers who claimed business deductions both for their meal costs and the cost of renting garage space for their vehicles. Court: The meals were properly deducted because they were clearly a required part of the job. The garage costs were not deductible because it was not necessary for the troopers to rent garage space in order to keep the cars off the street.
Source: Steven Pillsbury, D Minn., No. 3-85-1361
On-The-Job Meals
Robert Walsh worked in a grocery store and was required to be on the premises at all times during his shift, in order to meet emergencies. For meals, he bought food from the store, ate on the premises, and deducted the cost as a business expense. Tax Court: To get a deduction a worker must be required to buy meals that are provided by the employer. Walsh was not entitled to a deduction because he could have brought his lunch from home.
Source: Robert M. Walsh, TC Memo 1987-18
Loopholes in setting up a business
Leasing Assets To Your Own Corporation
The fact that the corporate form is selected as the basic means of conducting a business enterprise does not mean that all of the physical components of the enterprise need to be owned by the corporation. Indeed, there may be legal, tax, and personal financial planning reasons for not having the corporation own all the assets to be used in the business.
Whether the corporation is to be the continuation of a sole proprietorship or partnership or a wholly new enterprise, decisions can be made about which assets owned by the predecessor or acquired for use in the corporation are to be owned by the corporation and which assets are to be made available to the corporation through a leasing or other contractual arrangement.
For the assets that go to the corporation, decisions must be made about how they are to be held and on what terms they are to be made available to the corporation.
There are several possible choices. The assets may by owned by:
· An individual shareholder or some member of his family;
· A partnership, limited or general, in which family members participate; or
· A trust for the benefit of family members.
A separate corporation is still another possibility, but the risk of being considered a personal holding company and incurring penalties due to passive income (including rent and royalties) may make this impractical.
Normally a leasing arrangement is used in order for the assets to be made available for corporate use. Assuming that the rental is fair, it would be deductible by the corporation and taxable to the lessor. Against the rental income, the lessor would have possible deductions for interest paid on loans financing the acquisition of the asset, depreciation, maintenance and repairs, insurance and administrative costs.
These deductions might produce a tax-free cash flow for the lessor. When depreciation and interest deductions begin to run out, a high-tax-bracket lessor might find that he/she is being taxed at too high a rate on the rental income. At this point, he may transfer the leased property to a lower-tax-bracket family member.
He might also consider a sale of the property to his corporation. This sale would serve to extract earnings and profits from the corporation at favorable tax rates. At the same time, it would give the corporation a high tax basis for the asset than it had in the hands of the lessor, thus increasing the corporation's depreciation deductions. This, of course, would reduce the corporation's tax liabilities and benefit the shareholders-the lessor included, if he/she is a shareholder.
How To Deduct Start-Up Costs Sooner
Avoid being forced to capitalize and amortize start-up costs over a five-year period. The trick is to get "in business" quickly. You can claim business deductions or losses only when you're "in business." (You're considered to be "in business" when you're trying to get sales.) Any subsequent expenses you incur will be to "expand" an existing business, and you can take full deductions for those items.
For example, let's say you want to open a sales organization. The start-up costs include getting products to sell and interviewing salespeople. If you can get one line, no matter how small, and make a few sales, you're considered to be in business. Then you can spend time looking to expand into other products and to hire a sales force.
Incorporating A Business Tax-Free
You may have a sole proprietorship or partnership and reach a point in the growth of your business where you want to incorporate. There's a special provision in the Internal Revenue Code (Section 351) that enables a business before the incorporation own at least 80% of the business after incorporation.
If you incorporate in this way, the IRS can't recapture depreciation deductions or investment credits (if still applicable). If the assets are subsequently disposed of, the recaptures will take place at the corporate and not at the individual level, even though you may have initially received the benefit from the investment credit or depreciation.
How To Set Up A Hobby As A Business
You can set up a hobby as a business and deduct your losses. However, you must be able to prove that the hobby is a for-profit business. If you realize some profit in at least three out of the most recent five consecutive years, it is presumed that the business is for profit. But even if you don't show and profit, you may be able to prove that the business is intended to make a profit.
To prove that you have a profit motive in conducting your business, keep detailed records. Present evidence of your advertising campaigns, attempts to generate new business, and sales analyses. It's not necessary to show that you run a big business, reaping huge profits, but only that you have genuine intentions of running the business in a businesslike way.
Best Way To Set Up A Family Business
A business can be organized as a corporation, a proprietorship, a partnership, or even a trust. Use combined forms of ownership to cut taxes.
Examples:
· Use a corporation to operate the business.
· Have an individual, as sole proprietor, or a partnership own the machinery and equipment and rent it to the corporation.
· Have an individual or partnership hold title to the real estate and rent it to the corporation.
· Use a trust (for the benefit of the children of the owners) as a partner in the partnership (in either the equipment partnership or the real estate partnership or both).
This arrangement reaps some important tax benefits:
· Tax losses are passed through to the high-tax-bracket owners. When partnerships begin producing income, transfer title to the low-bracket children for income-splitting purposes.
· Income from the rental goes to the owners without dilution for corporate taxes.
· Income to the children aged 14 or older benefits from income-splitting.
The possibilities for combining the above are endless. Consider such additional entities as S corporations, multiple corporations, and multiple trusts.
Caution: The "passive-loss" rules, imposed by the Tax Reform Act of 1986, severely restrict the deductibility of many partnership losses, S corporation losses, and losses from rental property. Always check with a tax professional before deciding on the structure of your business.
When To Set Up A Venture Partnership
You may be asked to help friends or relatives start up a small business by providing the capital to finance the deal. Set up the business as a partial shelter for the amounts you invest. Uncle Sam helps you reduce the amount that you're investing by allowing you to deduct a large share of the losses. I call such a deal a venture partnership. Here's how it works:
You become the limited partner. As such, you're entitled to deduct a very large share of the losses, up to 99%, since you're putting in all the money. At the point that the business turns around, the percentages drop. You might receive 50% of the profits after getting your money back, and the person you helped also received 50% of the profits. Now both of you can share in the profits as partners, but at the outset you get the benefit of a larger share of the losses. Caution: These write-offs are subject to the passive-activity-loss rules.
Best Tax Shelter In America
Tax Reform has taken dead aim at tax shelters. It's not longer possible to offset your salary or investment income with paper losses generated by passive investments in oil wells, real estate developments, etc. Neither is it possible to cut the family's tax bill greatly by shifting investment income to children who are under age 14.
But even under Tax Reform, the best tax shelter still remains. With it you can generate large paper losses, claim deductions for personal or hobby-like expenses, and legally shift income to your low-tax-bracket minor children.
The best tax shelter is a sideline business.
Here’s how a sideline business can be used to get the big tax-sheltering-type deductions, along with winning examples of taxpayers who have already done it…
Income-Shifting
Under Tax Reform, investment income exceeding $1,300 for a child under age 14 is taxed at the rate paid by the child’s parents. But this rule does not apply to the earned income of a child.
Result: When a child works for a parent’s sideline business, earning are taxed at the child’s own low tax rate. Since the parent deducts the salary paid to the child as a business expense, the family’s total tax bill is lowered by the difference between the parent’s high tax rate and the low or zero rate on the child’s salary.
Of course, this income-shifting technique is also available for children over age 14 and other family members. And even greater tax benefits can be obtained when family members use the salary you pay to make deductible IRA retirement contributions, or when the business pays for deductible benefits.
The only rule that governs paying salaries to family members is that they must actually earn their salaries. Salary deductions have been allowed when:
Source: James Moriarity, TC Memo 1984-249.
Source: Charles Tschupp, TC Memo 1963-98
Source: Clement J. Duffey, 11 AFTR2d 1317.
What Qualifies
A part-time activity can easily qualify as a business. The only requirement is that you operate your activity with the objective of making a profit. You don’t actually have to make a profit, nor do you have to expect to make a profit in the near future. Examples:
Home Deductions
A major benefit of running a sideline business out of your home is the possibility of claiming a home-office deduction. This entitles you to deduct expenses that were formally personal in nature, such as rent, utility, insurance, and maintenance costs attributable to the office. Even better: You can depreciate the part of your home that’s used as an office, getting large paper deductions that cost your nothing out of pocket.
To qualify for the deduction, you must have a part of your home that’s used exclusively for business and is that primary place where you conduct the sideline business. Winning examples:
Source: Edwin R. Cruphey, 73 TC 766.
Source: Max Frankel, 82 TC 318.
Big Dollar Deductions
Tax Reform prohibits taxpayers from offsetting their salary and investment income with losses from businesses in whish they participate as passive investors (as shareholders or limited partners without management duties).
But if you actively manage your own sideline business, it’s still possible to claim big loss deductions. Important: Tax losses do not necessarily mean cash losses. Items such as depreciation on cars, equipment, and real estate can result in deductible tax losses while the business is earning a cash-flow profit.
A sideline business is presumed to have a profit objective if it has reported a profit in three out of five years (two out of seven year for horse breeders). But such a business may be deemed to have a profit objective, even after reporting many years of continuous losses. Winning examples:
Source: Frederick A. Purdy, TC Memo 1967-82.
Source: Hunter Faulconer, 48 F2d 890
Source: Lawrence Appley, TC Memo 1979-433
Start-Up Tactic
When starting a new sideline business, you can protect your deductions by electing to have the IRS postpone its examination of your business status until after you’ve been operating for four years (six years in the case of a horse farm). You’ll be able to treat your sideline as a business during that period, even if it earns continuous losses. But if you can’t demonstrate a profit objective at the end of that period, you’ll owe back taxes. Make the election by filing the IRS Form 5213, Election to Postpone Determination That Activity Is for Profit.
Winning examples:
New ruling: Now Feistman could deduct his costs because he was operating in a businesslike manner. The Tax Court allowed him to deduct $9,000 over two years.
Source: Eugene Feistman, TC Memo 1982-306
Source: Gloria Churchman, 68 TC 696
Source: Melvin Nickerson, 700 F2d 402
Source: Bernard Wagner, TC Memo 1983-606
Source: J.V. Keenon, TC Memo 1982-144.
Paying Your Child A Tax-Deductible Allowance
A favorite tax-planning tactic is to have a minor child work for the family-owned business. Income earned by the child is taxed at the child's tax rate, which is likely to be much lower than the parents' rate. In addition, the company gets a deduction for the child's salary. A dramatic taxpayer victory* shows just how effective this tactic can be.
The facts: The taxpayers owned a mobile-home park and hired their three children, aged 7,11, and 12 to work there. The children cleaned the grounds, did landscaping work, maintained the swimming pool, answered phones, and did minor repair work. The taxpayers deducted over $17,000 that they paid to the children during a three-year period. But the IRS objected, and the case went to trial. Court's decision: Over $15,000 of deductions were approved. Most of the deductions that were disallowed were attributable to the seven-year-old. But even $1,200 of his earnings were approved by the court.
Key: The children actually performed the work for which they were paid. And the work was necessary for the business. The taxpayers demonstrated that if their children had not done the work, they would have had to hire someone else to do it.
What the IRS Knows About You
The IRS gets information from third parties and matches this information to you through its computers. Stay one step ahead by being extra careful to report on your tax return what the IRS already knows about you. (You should receive from the third parties copies of all the information they send to the IRS.) What the IRS knows and how:
Your Income. The IRS knows, of course, if you have been paid over $600. The payer must report this payment to the IRS on Form 1099-MISC, Statement for Recipients of Miscellaneous Income. Included in this category:
Your wages. The IRS knows from your W-2 Form exactly how much you earned in regular income, bonuses, vacation allowances, severance pay, moving-expense payments, and travel allowances. Your W-2 must be attached to your return.
Interest income. The IRS knows if you’ve been paid any interest. Banks and financial institutions must report these payments to the IRS on Form 1099-INT, Statement for Recipients of Interest Income. Trap: Some interest income is reported to the IRS even though you haven’t received it yet. It must be reported as part of your income.
Dividend income. The IRS knows if you’ve received over $10 in money, stock, capital-gain distributions, or property from a corporation. The corporation must report these payments to the IRS on Form 1099-DIV, Statement for Recipients of Dividends and Distribution. Important: Make sure the report agrees with your records.
Tax-refund income. The IRS knows about tax refunds you receive. State and local governments must report such payments of over $10 on Form 1099-G, Statement for Recipients of Certain Government Payments. Important exception: If you didn’t claim the state and local taxes that you paid as itemized deductions on your federal return, you don’t have to report these refunds as income. If you receive a Form 1099-G, analyze it carefully to see whether you must include it in income or if you qualify under this exception.
Gambling winnings. The IRS knows about money you won from horse racing, dog racing, jai alai, lotteries, raffles, drawings, Bingo, slot machines, and Keno. It’s all reported to the IRS on Form W-2G, Statement for Recipients of Certain Gambling Winnings. The general rule: Payments of $600 or more must be reported by the payer. Exceptions: Bingo payments of $1,200 or more and Keno payments of $1,500 or more will be reported.
Other income the IRS knows about:
· Original-issue discounts.
· Mortgage interest received from individuals in the course of a trade or business.
· Money received from broker and barter exchanges.
· Distributions from pension and profit-sharing plans, IRAs, etc.
· Cash payments of over $10,000 received in a trade or business.
· Cash deposits of over $10,000 made to your bank account.
· Fringe benefits received from your company.
· Social Security benefits.
· Tax-shelter participation.
· Unemployment income.
Child's Compensation Taxed
A seven-year-old child received a $30,000 court award for personal injuries. The award will be invested on the child's behalf. How will it be taxed?
A court's award of damages as compensation for personal injuries is tax-free when received. However, when the award if invested, the income it produces is taxed under normal rules.
In the case of a child under age 14, investment income exceeding $1,300 may be taxed at the top-bracket rate of the child's parents. To avoid tax, the award may, of course, be placed in an investment that is tax-exempt (such as municipal bonds) or in one that will defer taxes (such as growth stocks or Series EE saving bonds).
Top 10 Filing Mistakes To Avoid
1. Incorrect amount of tax entered from the tax table. Find your correct filing status at the top of the tax table and copy the correct amount from that column onto your return.
2. Error in computing the credit for child- and dependent-care expenses. Carefully work through Form 2441 and the accompanying worksheet contained in the instructions. The child-care credit could be limited if you are subject to the Alternative Minimum Tax. The worksheet will help you figure out if the limit applies.
3. Not claiming the earned income credit. Low-income taxpayers may be entitled to a credit. To see if you qualify, use the earned income-credit worksheet contained in the instructions for filing your tax return.
4. Income tax withholding and estimated tax payments entered on the wrong line. Federal income tax withheld is reported on one line. Estimated tax payments go on the next line.
5. Wrong Social Security number. If you use the IRS peel-off mailing label, check to make sure your number is correct. And…double-check your Social Security number on your W-2.
6. Indicating overpayment to be credited to estimated tax…when you actually want a refund. Be sure to mark the correct line.
7. Adding income, deductions, or credits incorrectly. Double-check the arithmetic for all these amounts before filing your return.
8. Entering Social Security tax withheld instead of federal withholding tax. Copy the amount of federal tax withheld from Box 9 of your W-2.
9. Incorrect computation of refund or balance due.
10. Computation error when figuring medical and dental expenses. You must figure your Adjusted Gross Income before you can calculate the deduction for medical and dental expenses. Read the instructions carefully for the rules of how to do this.
Recordkeeping Hotline
Recordkeeping Alert
As a result of Tax Reform, recordkeeping is now necessary in some areas that never required records before. Crucial: Keep flawless records.
IRA contributions. For most people, the new rules have cut out deductible Individual Retirement Account contributions. If you or your spouse has a company pension plan and your Adjusted Gross Income is greater than $50,000 ($35,000 for single taxpayers), your IRA contributions aren’t deductible. However, nondeductible contributions to IRAs are still slowed (generally up to $2,000).
Recordkeeping alert: Taxpayers who have both deductible and nondeductible IRAs must now begin keeping special, detailed records of all their contributions for tax purposes. Reason: When you withdraw money from your IRA, the IRS aggregates all your IRA accounts together and treats the withdrawal as if it were both from your deductible and your nondeductible contributions, even if they were in separate IRAs. Result: Part of every withdrawal is going to be taxed, and part of every withdrawal is going to be tax-free.
Since the deferred earning on IRAs are taxed at withdrawal, every withdrawal must be broken down into three parts to figure out the tax:
Income shifting. Gifts to children under age of 14 that generate investment (unearned) income over $1,300/year will be taxed at the parents’ tax rates.
Recordkeeping alert: Avoid mixing this type of unearned income with the child’s earned income (which is always taxed at the child’s own rates no matter how much he/she earns). Put the unearned income into an account that is separate from the earned income so there will be no question as to how to treat the income for tax purposes.
Meal and entertainment expenses that you incur in the course of your business are only 50% deductible. This limit applies whether you are eating out alone or entertaining clients in order to get new business. Included in this limit: Food, beverages, cover charges, gratuities, taxes, theater tickets, etc.
Exception: An employment who is reimbursed for these expenses by his employer doesn’t have to worry about this rule once he has properly accounted for them to his employer. The employer, rather than the employee, takes the 50% deduction.
Recordkeeping alert: Don’t lose or misplace a single receipt for meal and entertainment expenses. Keep a diary to record the details, especially if you entertained others. Carry this diary around with you at all times.
Interest Recordkeeping Requirements
The IRS requires that you document fully the flow of funds for all loans you take in order to determine the deductibility of the interest.
Personal mortgage interest on two residences is fully deductible up to certain limits. The deductibility of other interest depends on how the funds are used.
For example, funds you borrow for the purpose of making investments are deductible to the extent of your investment income. Personal interest isn’t deductible. Interest that you pay on funds used to purchase a passive activity or real estate is lumped with the gains or losses from that activity. To the extent that there’s a net loss, the interest may not be deductible because of the limitations inherent in those transactions.
The recordkeeping requirements are very stringent. In the past, if you borrowed money on a margin account, the IRS presumed that the interest was for investment purposes. Now the burden is on you, the taxpayer, to show proof of the flow of funds.
Advice: If you borrow money and want to get a tax deduction for the interest, keep careful records to indicate the uses and applications of the monies borrowed. Also, keep records proving you repaid the principal. Obviously, if you have a choice of which loan to repay first, you should repay the loan that gives you the least deductibility of interest.
Retaining Records
Most records have to be held for only three years after the due date of you tax return. That’s when the statute of limitations expires for tax audits by the IRS and refund claims by the taxpayer. But some records should be kept indefinitely, especially those relating to the acquisition of property, whether by purchase, gift, or inheritance. Reason: If you ever sell the property, you can’t determine profit or loss without proof of its original cost or other tax basis.
Lost Records
John and Louise Kranc deposited all their records with their accountant in order to prepare their tax return. The accountant lost the records. The Krancs then argues that the substantiation requirements for their deductions should be waived because it wasn’t their fault that the records had been lost. Tax Court: The Krancs were out of luck. They should have kept copies of the records they gave to the accountant.
Tax-Free-Income Loopholes
One of the shortest sections of the federal Tax Code is Section 61. It defines gross income as "all income from whatever source derived." But don't take this literally. There are many kinds of income that are not taxable. Types of income that you don't pay federal income tax on:
Gain on the sale of your home.
· If you buy a new home within two years before or after you sell the old one, no tax is generally owed on the gain, if the new home costs at least as much as the amount you got for the old one.
· If you (or your spouse) are at least 55 years old, any gain up to $125,000 is tax-free. (You must have owned and lived in the home for at least three years out of the past five.)
Gifts you receive. Any gift tax is payable by the person who makes the gift. The recipient gets the gift free and clear of tax.
Money you borrow. Normally, borrowing is not a taxable transaction. But you'll be taxed if you borrow from your IRA, if you borrow more than $50,000 (or half your account) from your company pension fund, or, in some cases, if you get an interest-free loan from your company or a family member.
IRA rollovers. No tax is payable on a lump-sum distribution that is received from a company pension plan if you put it into an IRA within 60 days. (Tax will be withheld, however, if you don't transfer the money directly from the company plan to the IRA trustee.) You can also take money tax-free from your IRA if you roll it over within 60 days into another IRA.
Inheritances. Beneficiaries don't pay federal estate tax on anything they inherit - the estate pays any tax that's owed. Moreover, if you inherit property that's increased in value, you receive it at its "stepped-up" estate value. you would then use this value, rather than the original cost, to calculate your taxable gain if you sell the property.
Life insurance proceeds. The beneficiary gets the full amount tax-free. But the estate may be liable for estate tax on the proceeds.
Property settlements between spouses in divorce or separation proceedings. The recipient owes no tax at the time property is transferred. (There may be a tax later if property is sold at a gain.)
Child-support payments. They are tax-free to the recipient. Alimony payments to a spouse or ex-spouse, however, are taxable to the recipient.
Money recovered in lawsuits for personal injuries or defamation of character. But money recovered to compensate you for lost wages or other income is taxable.
Workers compensation payments.
Disability payments from accident and health-insurance plans. The payments are tax-free if you paid for the insurance, but taxable if your employer paid the premiums.
Federal income tax refunds. (But any interest the IRS pays you on a late refund is taxable.)
State income tax refunds...provided you didn't itemize deductions on your federal return for that year.
Municipal bond interest. Generally, it's exempt from federal income tax and sometimes from state and local taxes, as well. However, interest from some "private purpose" municipal bonds is subject to the Alternative Minimum Tax. And, municipal bond interest is taken into account in figuring your income level to determine whether any of your Social Security benefits are taxable.
"Like-kind" property exchanges-swaps of tangible property or real estate are tax-free if the properties are of similar nature.
Vacation home rental. If you rent your vacation place out for 14 days or less, the income is not taxed.
Kids' wages. Dependent children can earn up to $3,700 of salary tax-free.
Kids' investment income. Dependent children can receive up to $600 of unearned income tax-free (dividends, interest, etc.).
Scholarships and fellowships granted on or before August 16, 1986, to candidates for degrees, are tax-free. But, if granted after that date, they are tax-free only to the extent they are used to cover tuition, fees, books, and course equipment. Grants for room and board, etc., are taxable.
Fringe benefits from your employer. Examples: Health insurance, pension contributions, up to $50,000 of life insurance coverage, up to $5,000 of death benefits, education expenses (up to $5,250 a year), certain child- and dependent0care, legal services under group plans, and supper money.
Meals and lodging, if furnished by your employer for the employer's convenience-for example, to enable the employee to remain at the workplace.