4 Ways to Double your Entertainment Deductions

Years ago, the rules for deducting business-related entertainment expenses changed. The deduction was cut in half, only allowing you to deduct 50% of the expense. This was a bit of a blow to many small businesses, and since then we’ve all been trying to find ways around the 50% limit.

There are a number of different ways you can max out your entertainment deduction. Some of the most common include:

  1. Entertain in your home, and conduct business. Your home is conducive to business. If there is a business intent to a gathering and business is discussed or conducted, you may be able to deduct the costs. Beyond that, however, if the business is in the form of a party for your employees or a sales seminar or presentation, you may be able to deduct 100% of the cost. Make sure to maintain clear records, as well as a guest list.
  2. Give tickets to an event as a gift, rather than claiming them as entertainment. If you’re giving someone tickets to a sporting event, for example, you have a decision to make: is it entertainment or a gift? If it’s a gift, you can deduct the entire cost – but only up to a limit of $25 per person, per year. If it’s entertainment, you’re stuck with the 50% limit. Tickets, then, that cost more than $50 are better treated as entertainment than as a gift. Meals and lodging can also count as gifts, as opposed to entertainment, so you don’t need to feel limited to sporting events.
  3. Make a meal company-wide. If you’re holding a lunch-time meeting and are providing food for your employees, 100% of that cost is deductible. This is different than if you take a subordinate out to lunch, which is only deductible at a normal rate of 50%. This would also apply to coffee, donuts, and even fruit baskets you give to your people; they all fall under the “De Minis Fringe Benefit” category and are 100% deductible.
  4. Attend charity entertainment events. If an event is organized specifically for the purposes of benefitting a registered 501(c)3 charity, donates its proceeds to that charity and uses volunteers to put on the event, then it qualifies. So, for example, a PGA Tour event that donates proceeds to charity would qualify for the 100% deduction, while tickets to a college basketball game would not qualify for 100%.

Each of these options will let you deduct the full cost from a particular entertainment activity. When you’re planning events, maximize your entertainment deductions by trying to fit it into one of these categories.

What to watch out for

In addition to meeting all of the requirements that a meeting or event must have in order to be a business meeting, there are certain types of expenses that are never an option when it comes to entertainment deductions. Some of these include:

  • Renting entertainment facilities. If you rent a hall to hold your annual holiday party, you can’t deduct the expense used to rent the facility. That includes any maintenance, cleaning, or security fees that you might have while renting the facility. The other expenses you occur in the facility – such as food or beverages – follow the normal rules for deductions, and what rate they can be deducted at.
  • Expenses of non-business guests. If people who aren’t business associates – employees, clients, vendors, or the like – attend an event, you have to divide out the cost of those two categories. You can only deduct the cost of the business-related portion. That means if you have a holiday party and spouses are invited, you can’t deduct the cost of entertaining the spouses. The only exception is if you have a business purpose (i.e. not purely personal or social) for inviting the spouse.
  • Membership fees or club dues. In years past, you could deduct the dues for membership in a country club or other organization where you gather together with business associates. If the purpose of the club is the entertainment of its members, or if it provides entertainment facilities for its members, it can’t be deducted.

Talk to your tax professional about your entertainment deductions, and how to optimize them for your business. A few simple changes to the way you handle a given event can mean the difference between being able to deduct half of the cost and being able to deduct the full cost of the event.

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