Biz Entertainment Tax Write-Offs

There's a fine line between business and pleasure when considering entertainment expenses.

There are rules. Essentially, the rules say: If you're having way too much fun, it's not a deductible expense. Here's a primer on when entertainment expenses count as business or pleasure.

First, any entertaining you do must be directly related to the active conduct of your business or associated with a directly related discussion that preceded or followed the meal or entertainment.

This goes for party throwing as well. To deduct the party, you must conduct business before, during or after the party.

The environment must be conducive to conducting business. An overly-boozy brunch, for instance, wouldn't qualify.

When it comes to writing off party expenses, the guest list also matters. You may deduct 100% of your cost if the party is either open to the general public or if it's for employees and their spouses.
By contrast, if the party is for clients, potential clients and independent contractors who work with you, then you may deduct only 50% of the cost. If there is a mix of employees and spouses along with clients and potential clients, you may allocate part of the cost as a 100% write-off and the remainder as a 50% write-off based on the number of guests in each category.
Another Internal Revenue Service rule says entertainment can't be "lavish or extravagant."
In case the IRS does come knocking, be prepared to defend the deductions you take. If you're having a party, for instance, make sure the invitation announces a business purpose and take pictures of guests inspecting new products or a video clip. Have attendees sign a guest book or track RSVPs so you can prove an accurate allocation of the expense between employees, independent contractors, clients, and potential clients and family members and friends who aren't at all deductible.
Then, keep all receipts for all expenses incurred. For expenses that cost less than $75, however, a journal entry in your appointment book with the amount, location and names of those you entertained is sufficient.

Five Rules for Writing Off Meals and Entertainment Costs

Post Updated May 2, 2015