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Business Entertainment Deductions Are Something to Smile About

 

social gatherings

social gatherings

Typically, you are not able to deduct expenses that are associated with social gatherings. If you did put together a party or entertain family and friends this past holiday season you might be happy to know there are some deductions you might still be able to take. There are some strict rules about what deductions you may take but they might be worth looking into.

Where To Start

Where To Start

Where To Start

To begin with, you are only going to be able to deduct any expenses that are “associated with” or “directly related to” the business that you run. Additionally, the percentage of deduction that you may take is typically limited to 50 percent of the total cost. There are some exceptions to this that will be discussed more later.

Entertainment

Entertainment

Entertainment Rules

While it is difficult to get deductions for expenses related to entertainment, you might be able to get deductions that are “associated with” entertainment expenses. To be able to get this type of deduction for entertainment and meals, you must be able to prove the following three things:

– The main reason for the combined entertainment and business gathering was to conduct business at the gathering.
– You legitimately engaged in business during the event.
– You were under the impression that you were going to be getting some income or your business was going to benefit in some other way.

 

Business Setting

Business Setting

Business Setting

Another great way to ensure that you can make business entertainment deductions is by having your gathering in a place that is clearly a business setting. This would ensure that the expenses are directly related to your business. As an example, if your business uses a hospitality suite at a big hotel or convention center to display goods or offer services, then it would clearly show that you are in a business setting. On the other hand, if you claim that you conducted business while out on a golf course or something similar, this is clearly not a conventional business setting and you will not be able to deduct business expenses.

business purpose

business purpose

Entertainment

The only way to get an entertainment deduction for a social gathering is if you can show that the entertainment is directly associated with your business. It needs to relate to the active conduct regarding your business and should occur right before or directly after the business portion of the event. You need to prove that the entertainment had a clear business purpose in which you incurred the expense for it.

substantial business discussion

substantial business discussion

Substantial Business Discussions

A substantial business discussion is one that directly relates to the topic of the business. While there is not a definitive guideline for what is considered “substantial”, it does need to be more than casual in nature. If you hold a business discussion with a client and then entertain the client before or afterwords, you will be able to deduct 50 percent of the cost of the entertainment. This can also include meals even if no business was discussed during.

Special Rules

Special Rules

Additional Special Rules

There are other special rules that can come into play when trying to deduct some business entertainment expenses. For example, you are not able to deduct club dues even if you happen to entertain your business clients before or after the “substantial business discussion”. However, other expenses might still be deductible.

Tickets to a musical performance

Tickets to a musical performance

Separate Events

If you were to give your clients some tickets to a musical performance or sporting event, you might be able to get a 50 percent deduction on those tickets if you attend with them. This is because the tickets can be considered “associated” with the entertainment within the general guidelines and rules. If you do not attend the event or musical performance with your clients, you might be able to deduct the cost of the tickets as a business gift expense instead. There is a limit of $25 per client in this case.

Holiday Parties

Holiday Parties

Holiday Parties

If you throw a holiday party and invited a bunch of clients and guests together, you will be able to deduct some costs associated with the attendance of the clients but not any associated with the social guests attending. However, if throw a party that is not restricted to only certain employees, then you will be able to write off and deduct the whole cost of the party instead of just the typical 50 percent.

I hope this article was informative during the tax season.  Hopefully, this article got you thinking about streamlining your practice. With all this in mind, if you’re not already using electronic tax filing, you may want to consider it. Typically, if efile 1099 and W-2 forms for clients, you’ll see results faster than using paper documents.

If you’re doing tax preparation, this tax season should have a focus on time efficiency. Like most preparers, your clients probably have employees and sub-contractors working for them.

If you’re burning through time producing and delivering paper forms, here’s a valuable tip. I use eFile4Biz.com to file 1099 online, and focus my time on getting clients. They’re an industry pioneer, and integrate with the well-known accounting software names as well. The 1 minute video below will reveal if they’re suitable for you.

Stop by our other WordPress page, and post your comments or resource links to debate this matter further.

 

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