Which Business Entertainment Expenses are Tax-Deductible?
Which Business Entertainment Expenses are Tax-Deductible?
Let’s say you invite a group of potential business partners into town. You take them to lunch, and later to an evening show. Are both the lunch and the evening show tax-deductible expenses for your business?
Yes. Of course, as always, you have to meet certain criteria to claim both of these expenses. The lunch falls under the category of a direct business entertainment expense as long as these four criteria are met:
1. You expect there will be a future benefit to your business as a result of the lunch.
2. The main reason you are entertaining these people is to conduct business.
3. You specifically discuss business or items that will benefit your business.
4. You footed the bill specifically so that you could talk directly with these people, who can possibly benefit your business in the future.
In addition, the lunch has to meet the criteria of being in a “clear business setting.” Places like restaurants, hotel dining rooms, and meeting rooms all qualify as clear business settings. Therefore, lunch meets this criteria.
Associated Business Entertainment Expenses
That takes care of lunch. Now, what about the evening show? In the past, the evening show would only be a legitimate business expense if it took place directly before or after business was conducted, making the evening show a non-deductible expense. However, the IRS has now made the regulation more generous.
These days, as long as the entertainment, in this case the evening show, takes place on the same day as business was conducted, the expenses is considered a legitimate tax deduction. The evening show is considered an “associated entertainment” expense. As with the lunch expense, half the expense of the evening show can be deducted.
Figuring out which business entertainment expenses are tax-deductible isn’t really that complicated. You just have to have these qualifications clear in your mind, and document the nature of each expense just as you would any other normal business expense.
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Photo credit: Dinner Party 1954
