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What business entertainment expenses are deductible?

As a general rule, you can deduct 50% of what you spend on business entertainment on your federal taxes. Although the IRS is very strict about requiring you to document the expenses and their business purpose, it can be surprisingly generous about what counts as a business expense.

For instance:

  • The deduction is not just for meals. You can often deduct the cost of entertaining clients at nightclubs, theaters, sporting events, and athletic clubs, and on hunting, fishing and vacation trips.
  • The deduction can include money you pay for a client’s personal needs on a trip, such as a hotel suite or a car.
  • You don’t have to actually discuss business during the meal or other entertainment, as long as you engage in a business discussion before or after. In some unusual cases, the business discussion could even take place on a different day.
  • You can deduct not only the basic cost of the entertainment, but also any taxes and tips.
  • You can generally deduct the cost of entertaining a client’s spouse, if the event is one where a spouse would normally attend (such as if the client is traveling with his or her spouse). You might also be able to deduct the cost of entertaining your own spouse, if the event is one where everyone typically brings a spouse.
  • You can often deduct the full cost (not just 50%) of tickets you buy to an event if it’s a charitable fundraiser.
  • You can take the deduction as long as the purpose was to encourage business – you don’t have to show that the entertainment actually resulted in any business. If you take someone for a round of golf to discuss a deal, and the deal falls through, you can still deduct the cost of the round.

 

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