Building and maintaining client and vendor relationships is the key to a successful business. Though there are definite benefits of entertaining key relationships, associated costs can easily add up. Luckily, such expenses may be partially tax deductible.
What kind of expenses qualify? Determining whether your lunch meetings or rounds of golf fit the bill can be tricky, but an entertainment expense is generally deductible if it passes either the directly-related or associated test.
To pass the directly-related test, the entertainment must either take place in a clear business setting or, if in an outside location, business must be focal point of your gathering. Any situation in which your surroundings can act as a distraction from conducting business, such as sporting events or concerts, would not qualify as directly-related.
If the expense is not directly-related, it may still qualify as associated. For an entertainment expense to be considered associated with business, it must occur either directly before or after a substantial business discussion. An example of this would be taking a client to lunch after a meeting. Also, expenses related to entertaining potential clients or maintaining existing clients qualify as associated with business.
Once you determine whether your expense meets the requirements, it is important to note that typically only 50 percent of an entertainment expense is tax deductible. Though these rules can guide you in concluding which expenses you can deduct, the eligibility of some expenses may be harder to verify. When unsure, it is best to keep meticulous records of your expenses and consult a tax advisor about any uncertainties you have.
CREDITS
column by STEVEN E. CRISMAN
Bio: Steven Crisman is the managing partner of Cross, Fernandez & Riley, LLP’s (C/F/R) Winter Haven office and leads their Agriculture Practice Group. He primarily serves the agriculture, manufacturing, warehousing, and distribution industries. He has specific experience with citrus growers, cattle ranchers, citrus and other horticultural nurseries, citrus harvesters and other support industries as well as watermelon, blueberry and other growers. In addition, Steve provides comprehensive tax and estate planning, attestation and business succession planning services.
