 We
All Love to Eat, Entertain, and Travel!
Take
Uncle Sam on Your Next Business Trip
By Mary Smith
We all enjoy a good meal or an evening of
entertainment especially when we receive a substantial
tax deduction for those expenses. There are some
guidelines to follow to qualify for such deductions, and
some of these expenses will be 100% deductible while
others may be only 50% deductible and some may not be
deductible at all.
Business related meals and entertainment
expenses usually qualify for a 50% deduction.
Entertainment is defined as “any activity providing
entertainment, amusement, or recreation.” Examples of
entertainment could range from entertaining guests at
nightclubs and/or social, athletic or sporting events to
going to the theater or simply having a nice dinner
engagement. In order to qualify for such a deduction
you must show that:
-
The main purpose of the business meals
and entertainment was the active conduct or pursuit of
business.
-
There was engagement of business during
the entertainment period.
-
There was a more than general
expectation of deriving income or some other specific
business benefit at some future time.
-
The meals and/or entertainment occurred
directly before or after a substantial business
discussion.
Notwithstanding the above, certain of the
aforementioned expenses are 100% deductible under the
following circumstances:
-
Advertising expenses:
meals, entertainment, or recreational facilities
provided to the general public as a means of
advertising or promoting goodwill in the community
-
Sale of meals or entertainment:
expenses that result from selling
meals, entertainment, goods and services, or use of
facilities to the public
-
Charitable sports events:
a package deal that includes a
ticket to a qualified charitable sports event
-
Meals provided on the premises for the
convenience of the employer
In addition, any expenses that are
included in an employee’s compensation or reimbursed to
a subcontractor or vendor by a customer are 100%
deductible.
Special rules apply to the following:
Skyboxes and other private luxury boxes.
If you rent a skybox or other private
luxury box, you generally cannot deduct more than the
price of a non-luxury or sky box seat ticket. For
example, assume the highest priced ticket (other than a
skybox and/or luxury box seat) to see the Buccaneers is
approximately $75 and you rent a skybox for an average
ticket cost of approximately $300. $75 is deductible,
subject to the 50% limit, and the excess $225 is not
deductible.
Food and beverages consumed in the
skybox.
If expenses for food and beverages are separately
stated, you can deduct these expenses in addition to the
amounts allowable for the skybox, subject to the
requirements and limits that apply. The amounts
separately stated for food and beverages must be
reasonable (i.e. you cannot inflate the charges for food
and beverages to avoid the limited deduction for skybox
rentals).
Entertainment expenses that do not
qualify for any kind of deduction
include, but are not limited to: dues paid to country
clubs or athletic clubs, airline clubs, hotel clubs and
clubs operated to provide meals under circumstances
generally considered to be conducive to business
discussions.
Travel expenses considered ordinary and
necessary are 100% deductible when you travel away from
home for your business, profession or job. Those
qualifying expenses are:
In order to maximize your deductions, you
must keep good records, and appropriately classify the
costs in accordance with the guidelines above. We
recommend that you consider tracking these types of
expenses on your general ledger and/or other accounting
records in the following accounts:
-
Meals &
Entertainment - Subject to 50% Limit
-
Meals &
Entertainment - 0% Deductible
-
Meals &
Entertainment - 100% Deductible
-
Advertising
-
Charitable
Contributions
-
Travel - 100%
Deductible
-
Club Dues – 0%
Deductible
Following these simple guidelines will
provide ease and documentation when the “tax man
comes.” And as always, remember that rules governing
deductibility for these types of expenses can be complex
and subject to interpretation. As such, please remember
to consult your tax advisor about these matters.
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