Global Tax Insights
Crash Course on Deductible Entertainment ExpensesOctober 27, 2015
If you plan to take a client or employee out to a football game this season, be mindful of important requirements for deducting business-related entertainment expenses.
It’s no secret that sometimes the best business deals and conversations happen over lunch, during a round of golf, or on the sidelines of a football game. If you are a football fan and are planning to take an employee or client to a game this fall, you might be able to deduct the tickets if you meet certain criteria. Take advantage of deductible entertainment expenses when you can- there are opportunities to save whenever you entertain an employee or client at a restaurant, nightclub, theater, sporting event, etc. at any point during the year.
General IRS requirements
Though many business owners deduct every meal with a client or employee, the IRS wants to know that business was actually talked about, and you weren’t simply enjoying a burger with a business associate. Other areas of concern include:
- The IRS has limits on how much you can deduct.- A round of golf for you and a client would be covered with the entertainment expense deduction, but the cost of your membership at the golf club would not be deductible, for example.
- The IRS wants you to keep records of entertainment related outings.- Beyond simply collecting receipts of your outings with clients and employees, you need to keep record of who was there, when it happened, and what business was discussed.
- Remember the “50% Rule”.- Realize that only 50% of business related meal and entertainment expenses are permitted as a deduction.
Can I deduct sporting event tickets?
Football season is in full swing, which means you might be hoping to take a client to a game. The ability to deduct sporting event tickets depends on whether the main purpose of attending the game is to meet, negotiate, or talk business in some way (much like requirements for meals and other forms of entertainment). Deducting expenses incurred from a dinner meeting with an employee or client is easy—but for a game, trip or tournament, the rules are a bit more complicated. Here are some things the IRS will scrutinize when it comes to sporting events:
- Substantial distractions- Given the loud and hectic nature of sporting events (football games especially), the IRS will want to be sure that there is some kind of business being discussed in order for the tickets to be lawfully deducted. The IRS can disallow your deductions if there are, as they put it, “substantial distractions”. If you and your employee or client sit in the general audience area, for example, there will most likely be no way you can conduct meaningful business with the noise and distraction. The IRS recommends that you purchase tickets in a suite area for this reason. Otherwise you can conduct the business portion of the outing before or after the game at a quieter location nearby.
- Luxury suite tickets- Even though the IRS suggests purchasing suite tickets in order to qualify for the deduction, be mindful that the deductible amount is limited to the face value of non-luxury seats. The IRS will be critical if any of your entertainment expenses seem lavish or over-the-top.
- Tickets for family members- The IRS permits deductions for tickets purchased for spouses, but does not mention other family members, so don’t expect to be able to deduct tickets for your employee or client’s entire family.
- Tickets given as gifts to business associates- If you plan to give a ticket to an employee or client, and not attend the game yourself, you cannot deduct it in the same manner as mentioned above. In this situation, you can only deduct the cost of the ticket if you treat it as a gift. Your gift limit for the year cannot exceed $25, however. If the tickets you are purchasing exceed $25, as football tickets generally do, your deduction will be rejected.
Having fun is an important part of business, and sometimes the most creative ideas happen during a leisurely outing. Whether you’re headed to a football game, hitting the links, or enjoying a meal out with a client, keeping business on the mind is crucial.
Questions? Contact any member of our Tax Services Team.