changes that took effect on January 1, 2018, taxpayers who met
specific requirements could deduct 50% of the cost of meals provided
to clients, customers, vendors or others for whom a business purpose
for the expense could be established. In general, for each
meal, the taxpayer would have to document five (5) elements:
Date of the
location of the restaurant/eating establishment
of the individuals who were entertained
for the meal/entertainment
receipt for the meal would have the information required for the
first three items; on the reverse of the meal ticket or receipt, I
recommend to clients that they write down the names of the
individuals who were there, and a brief note as to the purpose for
the meeting/meal. Without all five elements provided, the cost
of the meal would not be allowable as a deduction.
for entertainment expenses was always a favorite audit item by the
IRS since most taxpayers (unless previously audited for the
expense) fail to maintain the information/records to prove
So, to be
deductible, your expenses for entertainment must be ordinary and
necessary to entertain a customer or client and must meet the
expenses are of a type that qualifies as meals or entertainment
expenses bear the necessary relationship to your business
adequate records and can substantiate the expenses.
The types of
expenses that can qualify can include items other than just meals.
Expenses incurred to provide entertainment, amusement or recreation
generally can be deductible under the proper conditions. Some
examples include entertaining guests at:
athletic and sporting clubs
fishing, vacation and similar types of trips.
expenses include the cost of meals you provide to customers or
clients, whether the meal alone is the entertainment or it is a part
of other entertainment. For example, refreshments at a
football game would be included. A meal expense includes the
cost of food, beverages, taxes and tips.
entertainment events can be deductible. However, the deduction
is limited to the face value of the ticket (if you had to pay
more than face value due to the popularity of the event).
There is an exception when the event benefits a charitable
organization if the main purpose for the event is to provide the
benefit. In such a situation, the full cost is deductible, and
the 50% limitation does not apply. As an example, a store
could provide bottled water to participants in a 10K race to raise
funds for cancer research. The full cost is deductible by the
store since the primary purpose was to promote goodwill in the
deductible, the entertainment expense must meet two test:
scenario, the entertainment must take place in a clear business
setting - like a restaurant. If you cannot meet the clear
business setting requirement, then all of the following conditions
must be met:
have more than a vague expectation of deriving some income or
other specific business benefit (other than a favorable
attitude of the person entertained) from the meal or
meal or entertainment, you actively engaged in business
purpose of the combined business and entertainment is the active
conduct of a business.
situations create a presumption that the directly related test has
NOT been met. The burden is on the taxpayer to
substantial distractions (such as meetings or discussions
occurring at night clubs, theaters, or sporting events)
meetings or discussions take place a social gatherings such as
includes people other than business associates
entertainment expenses may be deductible under this more lenient
test so long as they meet two requirements:
expenses are associated with the active conduct of your
business. In other words, there must be a clear business
purpose such as getting new business or bolstering an existing
The meal or
entertainment occurs before or after a substantial and bona fide
important! Entertainment that occurs on the same day as the
business discussion will meet the "directly precedes or follows"
requirement. If not on the same day, this presumption
will not apply and the taxpayer will have to prove the connection.
considered in making a determination for deductibility would include
the place, date and duration of the business discussion, whether you
and your business associate are from out of town (and the dates of
arrival and departure), and the reasons the entertainment didn't
take place on the same day as the business discussion.
circumstances, the expenses claimed must be reasonable in amount.
Any expense deemed extravagant or lavish would not be deductible.
STARTING JANUARY 1, 2018
under the new tax law, expenses for meals and entertainment are NOT
DEDUCTIBLE. There are certain exceptions that are covered