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Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. A meal expense includes the cost of food, beverages, taxes, and tips for the meal. To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided.
When entertaining clients the cost of the beverages may be deducted.
If you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift.
Under the Tax Reform Act of 1 986, a business can still allow clients or potential clients to have "three martinis" at lunch but the tax deduction would be limited to 50 percent. The actual law can be found in The Internal Revenue Code Section 274.
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