Next, the business

meal or entertainment expense should also be either "directly related"

to or "associated with" the business. To satisfy the directly-related

test, the entertainment activity must directly relate to carrying out

your business be it developing new business or encouraging the continuation

of existing business relationships. In other words, you must actively

engage in business during the meal or entertainment event.

For example,

a catered meeting in your company's conference room for clients would

meet the "directly-related" test, as would reserving a hospitality

room at a convention.

You need not

devote more time to business than entertainment in order to satisfy the

test, nor are you required to demonstrate that business income or some

other business benefit actually resulted from the event.

If discussing

your company's widgets during the seventh inning stretch isn't your idea

of the best way to qualify for the deduction, you may be able to demonstrate

that the entertainment expense meets the more easily satisfied "associated

with" test.

To satisfy

the "associated with" test, the entertainment event must have

a clear business purpose and must precede or follow a substantial and

bona fide business discussion.

Business meals

and entertainment expenses generally are 50 percent deductible. The cost

of getting to the restaurant or entertainment event, however, is 100 percent

deductible regardless of whether you travel by car, subway, or limousine.

Holiday parties, picnics, and similar events held for employees and their

families are 100 percent deductible, provided that they occur infrequently

and that everyone at work is invited. Business need not be discussed during

these morale-boosting events.

When entertaining

customers or clients, paying a scalper or ticket broker to secure good

seats to a sports or entertainment event may very well impress your client,

but don't expect Uncle Sam to help defray the added expense.

You may deduct

50 percent of the face value of tickets, but not 50 percent of

what you actually paid the scalper. Similarly limited is the deduction

for the cost of skyboxes and other private luxury boxes rented for a season

or for a series of events such as playoff or championship games. Where

the cost covers more than one event, your deduction is limited to 50 percent

of the total of the face values of non-luxury box seats times the

number of seats in the box. However, if you rent a skybox for just one

game, you can deduct 50 percent of the cost of the rental of the entire

skybox.

There are strict

requirements for substantiating your expenses. For each deductible meal

and entertainment expense, you must show the date, place, amount, business

purpose of the expense, and the business relationship of the person(s)

being entertained. It's a good idea to make notes on the back of receipts

or in your business planner. If you fail to satisfy IRS reporting requirements,

your deduction may be disallowed.

Keep in mind

that the area of meals and entertainment expenses attracts the attention

of the IRS. However, CPAs point out that if you meet the requirements

for deductibility and keep accurate and complete records, your deductions

should withstand IRS scrutiny.

The GSCPA is

the premier professional organization for CPAs in the state of Georgia.

With over 10,000 members throughout the state, the purpose of the GSCPA

is to promote the study of accountancy and applicable laws, provide continuing

professional education, maintain high ethical and work standards, and

provide information about accounting issues to the membership and the

public. For more information, access our web site at www.gscpa.org.

Back

to Business Home Page