Business Deductions
- Amortization
- Business Losses and Net Operating Losses
- Car and Truck Expenses
- Day-Care Services
- Depreciating Business Property
- Depreciating Your Car
- Domestic Production Activities Deduction
- Health Insurance Deduction
- Home Office Deduction
- Meal and Entertainment Expenses
- Organizational Costs and Start-up Costs
- Qualified Plan Awards
- Schedule C Expenses
- Section 197 Intangibles
- Should You Sell or Trade in Your Car?
- Start-up Costs
- Travel Expenses
More Tax Topics
- Business Structures
- Hiring Workers
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
Quick Links
Hot Topics
Need Some Deductions for 2011?
Don't overlook these!
Updated for 2011
Small Business Deductions: Meals and Entertainment
<< Previous
Meals and Entertainment
B) The Associated Test (Goodwill Entertainment)
If you cannot meet the directly related test, you may still qualify for a deduction by meeting the associated test.
Under the associated test you must be able to show...
- that directly before or after the dining or entertainment a substantial and bona fide business discussion occurred related to the active conduct of your business.
- As a general rule, the IRS says dining and entertainment should occur on the same day. If this was not possible, be prepared to explain why.
- For example, if an out-of-town customer arrives at your business late in the day, you may entertain the customer that evening, then discuss business that next day. This would be an acceptable reason for not complying with the general rule.
A substantial business discussion doesn't have to be for any particular length of time and it doesn't have to be longer than the entertainment. Moreover, you don't have to discuss business during the period of entertainment.
Goodwill Entertaining:
The associated test can apply to goodwill entertaining. Under this test you can entertain in a nonbusiness setting, like a nightclub, restaurant, theater, or sports arena.
Example:
- During the day you conduct substantial business discussions with business associates.
- Later that evening you take your associates and their spouses and your spouse to dinner and a play.
- Dining and entertainment expenses are deductible for yourself, your spouse, and your associates and their spouses.
Result:
- Meals and beverages, including the tax and tip, are only 50% deductible.
- Only 50% of the face value of the theater tickets are deductible (even if you paid more).
- However, transportation expenses to and from the restaurant and theater are 100% deductible.
Next:
Meals and Entertainment Expenses: Audit Proofing Your Meal and Entertainment Expenses; Entertaining at Home
Related Links
- Per Diem Rates - IRS Publication 1542 Oct 2010 for Travel Within the Continental U.S.
- Domestic Per Diem Rates - General Services Administration
- What Are Meal and Entertainment Expenses?
- The Rules for Deducting Meal and Entertainment Expenses
- The Restrictive Tests for Meals and entertainment Expenses
- Entertainment Costs of a Spouse
- Entertainment Facilities
- Tickets to Events
- Skybox Rental
- Club Dues
- Trade Association Meetings
- Business Gifts
- Gift or Entertainment?
- Taking Turns Paying the Bill
- How Much Can You Deduct?
- Transportation Costs
- Exceptions to the 50% Limitation Rule
- Where to Deduct Meal and Entertainment Expenses
- Deducting Qualified Plan Awards
- Deduction Limit for Qualified Plan Awards
- Non-Qualified Plan Awards
Copyright © 2008-2012 Larry Villano. All rights reserved.