You Might Want to Rethink How You Entertain Your Business Clients in 2018!

In 2017, you can deduct the cost of entertainment expenses for your business if they are not considered “lavish or extravagant”, meet either the directly related test or the associated test and you have accurate records.  In 2018 the rules have changed, and you might want to rethink how you are going to entertain your clients.

The perspective of “lavish and extravagant” expenses are different for each type of business.  Coca Cola, Disney and Google expenses would probably be much more expensive than a one owner salon.  The IRS is going to look at the expense in relation to the actual business and what seems relatively appropriate for the circumstances.  I heard a story once, of a man that tried to deduct his daughter’s wedding as a business expense because he had invited clients to the event.  The IRS was not so understanding of how he interpreted the law and he was fined with some heavy penalties.

As you put together your receipts for 2017, keep these thing in mind:

  1. The entertainment expense must meet one of the following tests –
    1. Directly Related Test – Meeting must take place in a business setting, or there is a clear business purpose to the meeting and the objective of the meeting is to gain income or obtain and benefit to your business.
    2. Associated Test – The event takes place before, during or after a meeting associated with your business. This could include taking your clients to a sporting event or play, after a meeting.  The event must happen right after the meeting, not several days later. Taking clients to a sporting event dates back more than a hundred years, and if the cost of those tickets is not considered “lavish or extravagant”, they are deductible.

Most of these entertainment expenses are going to be deductible at 50%, but there are some entertainment expenses that you can deduct the full amount.  If you had a holiday party this past year, a company picnic or a conference, where all employees are invited, they are a 100% deductible!  Go find those receipts!

As you put together your receipts and information for your 2017 taxes, make sure you record the business purpose, amount, date, place and the relationship of the people that you entertained.  The IRS is going to want to see this information if you get audited.

In 2018, these entertainment deductions are GONE!  You don’t need to worry about keeping track of those events your taking your clients to, but you might want to contact your CPA and take another look at your budget.  Reducing some of the money allocated to entertainment might be wise, because you will no longer get a tax deduction for them.

We, at Excerebus, want to help you keep the most money in your pocket.  You can reach us at info@excerebus.com and 407-988-5647.

Come back tomorrow to find out how you can still invite clients to events, but provide opportunities for them that can be deductible!

Categories: Tax Information

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