How to Write Off T&E: Entertainment
Like meals and lodging while traveling, entertainment for business purposes is 50 percent deductable. You can consider your entertainment expenses to be for business purposes if they are either "directly related to" or "associated" with your business. "Directly related" means that the main purpose of the entertainment activity was the conduct of business, that the entertainment was conducted in a business setting (like a hospitality room), that business was actually conducted during the activity, and that you expected to either make money or achieve another business purpose from the meeting. "Associated" means that the entertainment was associated with the conduct of business. Generally, if it takes place during the same day as an extensive business discussion, it fits into this category and is deductable. "You're not necessarily expected to talk business during a show," Weltman says. "But you're expected to have discussed business before or after."
Assuming that they are either directly related to or associated with your business, you are allowed to deduct the following activities:
1. Dues to civic organizations like the chamber of commerce or a professional organization.
2. Meals. You are allowed to deduct the cost of spouses' meals only if there is a clear business purpose to do so. For instance, if you invite a customer who is visiting from out of town to dinner and it would be impractical not to invite his or her spouse, you can deduct the cost for the spouses' meal as well.
3. Tickets. Only the face value can be deducted. Service charges and fees are not deductable. If you purchase a luxury box for multiple events, only the cost of a non-luxury ticket per person can be deducted.
You are not, however, allowed to deduct the following:
1. Dues to country clubs and other social organizations.
2. Upkeep of entertainment facilities.
3. Meals that you have already deducted as a travel expense.
4. Non-business guests at entertainment events. If you host a party and invite six business guests and four friends, only sixty percent of the cost of the party is deductable.
Dig Deeper: Deducting Business Entertainment Expenses
How to Write Off T&E: Keeping Track of Travel and Entertainment
When traveling or entertaining for business purposes, it's important to document everything. It's not enough to just keep receipts, you also need to document who you spoke with, what you spoke about, and how it was related to your business. For travel, the IRS also requires you to keep a written or electronic log, made near the time that you make the expenditure, recording the time, place, amount and business purpose of each expense. This once took the form of expense reports. Increasingly, online programs and even apps, like Tax Tracker, are available for documenting business expenses.
Weltman also suggests creating a paper trail that can be traced if you are audited by the IRS. Take notes on meetings you attend while traveling, keep programs of conferences you attend, sign in to conferences, and keep e-mails sent to those you met with during business meetings.
As with all deductable business expenses, you are also expected to keep receipts for travel and entertainment purchases. For meals, make sure that the receipt includes the exact cost of the meal as well as the name and location of the restaurant. Get in the habit of writing down who was present (names and business relationship) and what business was discussed.
For entertainment expenses, document: the amount of each separate expense; the date of the entertainment; the name, address, and type of entertainment; the business reason for the entertainment; and the name, title, and occupation of the people who you entertained.
Dig Deeper: Small Business Tax Strategies
How to Write Off T&E: Additional Resources
What the IRS has to say about business and travel expenses: http://www.irs.gov/newsroom/article/0,,id=167363,00.html
Barbara Weltman's Tax Advice:
http://www.barbaraweltman.com/articles/tax.asp
H&R Block is offering a full day of free tax advice from 12:01 a.m. CDT to 11:59 p.m. CDT on Thursday, March 25. E-mail taxtalk@hrblock.com or call 866-HRBLOCK: http://getitright.hrblock.com/
