MIME-Version: 1.0 Content-Location: file:///C:/E688D913/BusinessEntertainmentExpenses.htm Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" Business Entertainment Expenses

Business Entertainment Expenses

 

 

Entertainment expenses that = are both ordinary and necessary in carrying on a trade or business may be deductible to the extent that t= hey are un-reimbursed if they meet one of the following two tests:

  1. the directly-related test, or
  2. the associated test.

In order to meet the directly-related test under the general rule you must show that:

  1. You = had more than a general expectation of getting income or some other specif= ic business benefit at some future time;
  2. You engaged in business with the person being entertained during the entertainment period;
  3. The = main purpose of the entertainment was the active conduct of business; and <= o:p>
  4. The expenditure was allocable to the taxpayer and a person with whom the taxpayer conducted business during the entertainment or with whom the taxpayer would have conducted business (if it were not for circumstanc= es beyond the taxpayer's control).

You may also meet the directly-related test by showing that the expenditure was for entertainment occurring in a clear business setting directly in furtherance of the taxpayer's trade or busines= s; that the expenditure was made directly or indirectly to someone (other than= an employee) as compensation for services; or that the expenditure was paid as a prize or award which is required to be included in the recipient's gross income.

For entertainment to meet the associated test, you must show that the entertainment was associated with the active conduct of your trade or business and direct= ly preceded or followed a substantial and bona fide business discussion. =

You must have records to prove the business pur= pose (under the applicable test) and the amount of each expense, the date and pl= ace of the entertainment, and the business relationship of the persons entertai= ned.

Generally, only 50% of meal and entertainment expenses are allowed as a deduction.

Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. This includes entertaining guests at night clubs, social events, theaters, sporting event= s, athletic clubs, on yachts, or on hunting and fishing vacations, and similar trips. The cost of a meal you provide a customer or client is deductible as entertainment (subject to the 50% limitation) only if you or your employee = is present when the food or beverages are provided.

None of the dues you pay for membership in any = club organized for business, pleasure, recreation, or other social purpose is deductible, if one of the club's principal purposes is to conduct entertain= ment activities or provide access to entertainment facilities for members or the= ir guests.