If you’re a sole proprietor or an employee, you can deduct ordinary and necessary business meals and entertainment expenses. Entertainment includes any activity that provides amusement, entertainment, or recreation, including meals you bought your customer or client.
You can deduct a meal or entertainment expense if:
There is a clear business purpose, such as getting new business or encouraging the continuation of an existing business relationship, and
You discuss a substantial amount of business before, during, or after the meal or entertainment.
The expenses can’t be lavish or extravagant, and your deduction is generally limited to 50% of the expenses incurred. You can deduct the cost of business gifts to current or prospective clients up to a maximum of $25 per client per year.
Tickets to shows or sporting events given to your clients to promote business are deductible. If you accompany your client to the event, you can deduct the cost of the tickets as an entertainment expense. If you don’t accompany your client, you can deduct the cost either as an entertainment expense or as a gift, whichever gives you the larger deduction. You can also deduct the cost of your meal and that of your client if the qualifications are met. If your spouse and your client’s spouse accompany you, their expenses are deductible as well.
However, you can’t deduct more than the face value of an entertainment ticket, even if you paid a higher price. For example, you can’t deduct service fees that you pay to ticket agencies or brokers, or any amount over the face value of the tickets that you pay to scalpers.
Dues to business or professional organizations that promote your business are also deductible. However, you can’t deduct expenses for club dues such as those paid to country clubs, social clubs, athletic clubs, and airline clubs.
Example: You’re a lawyer for a corporation, and you belong to the local bar association. Because you travel frequently on business, you belong to an airline travel club that allows you to use special lounges in airports where you can relax, make business phone calls, and work on your laptop computer. You can deduct your bar association dues, but you can’t deduct your airline club dues even though you use the club’s facilities for business.
Your meal and entertainment expense records should include the following:
The cost of each meal or entertainment. You can add together incidental expenses such as cab fares, telephone calls, and so forth, and record the total on a daily basis.
The date the meal or entertainment took place.
The name, address, or location, and the type of meal or entertainment, such as dinner or theater.
The reason for the meal or entertainment, the business benefit that you derived from entertaining your client, and a brief summary of the business discussion that took place.
The name, occupation, and other pertinent information about the person or persons you entertained or dined with.