Entertainment as a business expense – sounds like fun! But what can you actually deduct as an entertainment expense?
First, you need to be with someone who does business with you, such as a customer, vendor or employee. Entertaining yourself doesn’t count, even if you’re a sole proprietor.
Then, you have to actively conduct business during the entertainment. For that reason, it can’t be in a place where there are “substantial distractions”. The IRS gives examples of these places, including the theater or at sporting events, golf and country clubs, yachts, vacation resorts, cocktail parties, and nightclubs. That’s right, all those “business meetings” at fancy nightclubs you see in the movies are not tax eligible deductions.
There are ways you can deduct your expenses in those settings, such as if you owned the venue, or if your business was related to the venue. For example, if you were a golf swing consultant, you could certainly write off those greens fees. If you’re a plumber, not so much.
Entertainment is also allowed when it’s in a “clear business setting”, such as at a conference building or at your client’s office. Remember though, you can only deduct 50% of your entertainment expenses – the IRS doesn’t want you to have that much fun.
About the author: Mariette Knoblauch, CPA, specializes in individual and small business income tax filing at The Ballard Beancounters.