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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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I have a tax deduction question, My wife and I own rental properties.

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I have a tax deduction question, My wife and I own rental properties. If we take a trip to New York for three days, we talk about real estate investment on our way, spend other time for fun. Can we deduct the expense like meal and hotel for the trip as Entertainment for partners?
Submitted: 1 year ago.
Category: Tax
Expert:  taxmanrog replied 1 year ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

Unfortunately, the IRS is aware of this kind of arrangement. In order to be deductible, the trip has to be ordinary and necessary for your rental property. The major reason for the trip has to be for business-related reasons. If you went to NY and talked to Realtors, and actually made an offer or wrote a contract on some rental property, then you would have a better basis for the deduction. If you just go and do a general "check out" of the real estate environment in NY, the trip would not be deductible. If you went and spent one of the three days truly investigating rental properties (you would have to document the properties that you looked at, what real estate agent showed them, etc.) you could deduct a proportional amount, or 1/3 of the expenses for a three day trip.

 

As a CPA, I used to travel, and always looked for local CPAs, looked in phone books, etc., but never wrote the trip off for just that reason. Similarly, I have family and clients in Wisconsin, if I took a trip up there and saw a client, I would only deduct a proportional amount of expense. If I spent 1/2 of a day working and visiting clients of a 2 day trip, I would deduct 1/4 of the expense.

 

I hope this has answered your question! If you have any more, please feel free to ask! If my answer has helped you, please rate me highly! I would appreciate that!

 

Again, thanks! Have a great weekend!

 

Roger

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 407
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and 7 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

What would qualify for the entertainment cost? when can I deduct ticket to an event, a meal and so on?

Expert:  taxmanrog replied 1 year ago.
Meals and entertainment is deductible at only 50% of the cost. You are allowed to deduct business-related entertainment expenses 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. An expense does not have to be required to be considered necessary.

To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that:

  • The main purpose of the combined business and entertainment was the active conduct of business,

  • You did engage in business with the person during the entertainment period, and

  • You had more than a general expectation of getting income or some other specific business benefit at some future time.

 

Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. You do not have to show that business income or other business benefit actually resulted from each entertainment expense. So even if the expense did not result in additional business, or a new client or customer, you can still deduct it.

Even if your expenses do not meet the directly-related test, they may meet the associated test. To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is:

  • Associated with the active conduct of your trade or business, and

  • Directly before or after a substantial business discussion

So if you invite a client or potential client to an event, or out to dinner, and business is the main topic of the meal, or if it takes place immediately after a business presentation, you are allowed to deduct 50% of the cost. You still need to substantiate the business purpose, where the expenses took place, the topic of conversation and who was in attendance.

IRS Publication 463 has some good information on Meals & Entertainment, including the information I gave you above. Here is a link to it: http://www.irs.gov/publications/p463/ch02.html This Publication also has some good examples as to how various M & E situations should be handled.

I hope this answers your question! If you have any more, please feel free to ask! If you have found my answer helpful, please rate me highly! I would appreciate that!

Have a great Friday!

Roger

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 407
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and 7 other Tax Specialists are ready to help you

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Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.