Are You Cheating Yourself Of Tax-Deductible Entertainment?

February 4th, 2014 at 5:32 PM

If you spend $5000 on business entertainment during the year, how much can you deduct?

If you said 50%, you may be correct.

How much do you report to your tax preparer?

If you said “$2500”, you are likely wrong. Why? Because tax preparers ususally make the 50% cut when preparing tax returns.

In its publication where it discusses the entertainment deduction, the IRS states that you apply the 50% limit AFTER identifying the amount deductible.

The IRS goes to the extent of giving us an example..you spend $200 for a business-related meal. If $110 of that amount is not allowable because it is lavish and extravagant, the remianing $90 is subject to the 50% limit–hence, a deduction of $45.

The lesson here is..first, identify the deduction of $90, and reduce it in half.

Technically, that is correct. But the real question is are both you and your tax preparer making the 50% cut; hence only a 25% deduction.

By the way, it’s difficult to believe the IRS could disallow a $200 meal as extravagant or lavish. In its own publication, the IRS notes that an entertainment expense is NOT extravagant or lavish just because it takes place in a deluxe restaurant, hotel, nightclub, or resort.

The bottom line here is that we find too many cases where new clients have NOT taken full advantage of the extent of business related expenses, such as entertainment. By the way, there are 12 specific ways to be able to deduct 100% of your business related meals.

We educate our clients through our 100 point checklist to avail them of ALL possible legal, moral, ethical, and proven tax strategies. These tax stategies, on average, reduce our clients tax liabilites by $7000 per year!!

Please contact me to find out out how we can be of service to your small business.