Entertainment expenses directly related to or associated with your work may be deductible. You must have records to prove the business purpose and the amount of the expense, the date and place of the entertainment, and the business relationship of the persons entertained.

This deduction is generally limited to 50% of the expense. For exceptions to this limit, refer to Publication 463, Travel, Entertainment, Gift and Car Expenses.

Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. This includes entertaining guests at night clubs, social events, theaters, sporting events, on yachts, or on hunting, fishing, vacation, and similar trips.

Deductible entertainment expenses must be ordinary and necessary. You must be able to show that they are directly related to or associated with the active conduct of your trade or business. For directly related entertainment, you must show that:

1.You had more than a general expectation of getting income or some other specific business benefit at some future time;

2.You did engage in business with the person being entertained during the entertainment period; and

3.The main purpose of the combined business and entertainment was the active conduct of your business.

The cost of food or beverages you provide a customer or client is deductible as entertainment only if you or your employee is present.

For associated entertainment, you must show that you had a clear business purpose for incurring the expense and that the entertainment directly preceded or followed a substantial business discussion.

None of the dues you pay for membership in any club organized for business, pleasure, recreation, or other social purpose are deductible.

If you are an employee, use Form 2106, Employee Business Expenses, or 2106-EZ, Unreimbursed Employee Business Expenses, to report business entertainment expenses. Unreimbursed expenses are carried over to Schedule A, Form l040, and are subject to the 2% of adjusted gross income limit. Listen to Topic 508 for more information on the 2% limit and Topic 305 for more information on record keeping requirements.

If you are self-employed, use Schedule C, C-EZ, or F, Form 1040, to deduct these expenses.

For more information, refer to Publication 463.

Tax Topics & FAQs | Tax Help Archives | Home