Deducting Travel and Entertainment Expenses

Dear Tax Talk,

What entertainment expenses are tax deductible? If I give customers or employees tickets for sporting events, can I deduct these costs?

-- Monica

Dear Monica,

Business-related entertainment expenses are tax-deductible expenses. Entertainment includes any activity generally considered to provide entertainment, amusement or recreation, and includes meals provided to a customer or client. In general, you can deduct only 50% of your business-related meal and 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.

If employees travel for business, the costs of their meals, whether per diem or actual, are only 50% deductible. Although the costs of travel to a convention or conference are fully deductible, the meals while attending are only 50% deductible. If meals are provided as part of the conference and not separately stated, the full cost of the conference or convention is deductible.

Any item that might be considered either a gift or entertainment generally will be considered entertainment. If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can treat the tickets as either a gift or entertainment, whichever is to your advantage. The deduction for gifts to customers is limited to $25 per person, per year. If the ticket cost more than $50, then the entertainment deduction would yield the greater tax savings.

If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expense through adequate records. For example, most people maintain an appointment book or Microsoft Outlook calendar. If you have an entertainment expense associated with these meetings, you should indicate it in your log entry. The entry together with a charge on your credit card would be adequate records for an examination. Credit card charges alone do not provide sufficient detail. A log for tickets as well as other gifts distributed to customers or employees should be kept.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.