You and your business entertainment deductions
Dear Clients and Friends,
As a former IRS Attorney we continue to represent clients before the IRS and in the Courts, regarding their tax audits and tax collection matters. The deductibility (or not) of business entertainment expenses are routinely a part of these tax audits and each of your familiarity with its basics will help not only in the planning and utilization of business entertainment activities but as well with ones annual tax obligations. In view of this we offer the following:
The most used rule is that one can deduct 50% of what is spent on business entertainment on your federal taxes, provided that one document these expenses and their business purpose. The IRS can be surprisingly generous about what counts as a business expense.
For instance: The deduction is not just for meals. One can often deduct the cost of entertaining clients at nightclubs, theaters, sporting events, athletic clubs and on hunting, fishing and vacation trips including taxes and tips. Deductions can include money paid for a client’s personal needs on a trip such as a hotel suite or a car.
Actually discussing business during a meal or other entertainment event isn’t actually necessary as long as you engage in a business discussion before or after. In some unusual cases, the business discussion could even take place on a different day.
You can generally deduct the cost of entertaining a client’s spouse if the event is one where a spouse would normally attend (such as if the client is traveling with his or her spouse). You might also be able to deduct the cost of entertaining your own spouse if the event is one where everyone typically brings a spouse.
You can often deduct the full cost (not just 50%) of tickets you buy to an event if it’s a charitable fundraiser.
You can take the deduction as long as the purpose was to encourage business – you don’t have to show that the entertainment actually resulted in any business. If you take someone for a round of golf to discuss a deal, and the deal falls thorough, you can still deduct the cost of the round.
Call us for a free phone evaluation for any tax issue that you or yours may have to see if we can be of help.