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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22773
Experience:  Taxes, Immigration, Labor Relations
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I get different answers from my accountant depending on when

Resolved Question:

I get different answers from my accountant depending on when I ask..it seems.

Can you tell me if the following expenses are tax deductible? And if so, if it's 50% or 100%

* Take a customer to dinner (at a restaurant) while at your "home town" place of business
* Take a customer to dinner (at a restaurant) while your travelling
* Take a customer to a football game
* Throw a tailgate party for customers at a football game (entertained several of my customers, etc.)
* Take a customer out for a drink to a nightclub

Thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to Just Answer!
All these may be classified as business-related entertainment expenses ( entertainment expenses are those you have for entertaining a client, customer, or employee).
You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests.
--Directly-related test.
--Associated test.
An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business.
Other rules:
  • You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense.

  • You cannot deduct expenses that are lavish or extravagant under the circumstances.

  • You generally can deduct only 50% of your unreimbursed entertainment expenses

The 50% limit applies to business meals or entertainment expenses you have while:
  • Traveling away from home (whether eating alone or with others) on business,

  • Entertaining customers at your place of business, a restaurant, or other location, or

  • Attending a business convention or reception, business meeting, or business luncheon at a club.

Included expenses. Expenses subject to the 50% limit include:
  • Taxes and tips relating to a business meal or entertainment activity,

  • Cover charges for admission to a nightclub,

  • Rent paid for a room in which you hold a dinner or cocktail party, and

  • Amounts paid for parking at a sports arena.

However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions.
1 - Employee's reimbursed expenses.
If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan.
2 - Self-employed.
If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met.
  • You have these expenses as an independent contractor.

  • Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.

  • You provide adequate records of these expenses to your customer or client.

In this case, your client or customer is subject to the 50% limit on the expenses.

Example. You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. If the client can deduct the expenses, the client is subject to the 50% limit.

If you (the contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit.

3 - Advertising expenses. You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit.
4 - Sale of meals or entertainment.
You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit.
5 - Charitable sports event.
You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event.
Individuals subject to “hours of service” limits. You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. The percentage is 80%.

Facts of having any specific expenses by themselves do not qualify for the exemption and generally are subject of 50% limit. So - you might be not subject of 50% limitation if any exemption may be used.
Let me know if you need any help.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22773
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you

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