You may be able to deduct business-related entertainment expenses
you have for entertaining a client, customer, or employee. The rules
and definitions are summarized in Table 2.
You can deduct entertainment expenses only if they are both
ordinary and necessary and meet one of the following two tests.
- Directly-related test.
- Associated test.
The amount you can deduct for entertainment expenses may be
limited. Generally, you can deduct only 50% of your unreimbursed
entertainment expenses. This limit is discussed later under 50%
Limit.
Club dues and membership fees.
You cannot deduct dues (including initiation fees) for membership
in any club organized for business, pleasure, recreation, or other
social purpose. This rule applies to any membership organization if
one of its principal purposes is to conduct entertainment activities
for members or their guests, or to provide members or their guests
with access to entertainment facilities, discussed later.
The purposes and activities of a club, not its name, will determine
whether or not you can deduct the dues. You cannot deduct dues paid to
country clubs, golf and athletic clubs, airline clubs, hotel clubs,
and clubs operated to provide meals under circumstances generally
considered to be conducive to business discussions.
Entertainment facilities.
Generally, you cannot deduct any expenses for the cost of using an
entertainment facility. This includes expenses for depreciation and
operating costs such as rent, utilities, maintenance and protection.
An entertainment facility is any property you own, rent, or use for
entertainment. Examples include a yacht, hunting lodge, fishing camp,
swimming pool, tennis court, bowling alley, car, airplane, apartment,
hotel suite, or home in a vacation resort.
Out-of-pocket expenses.
You can deduct out-of-pocket expenses, such as for food and
beverages, catering, gas, and fishing bait, that you provided during
entertainment at a facility. These are not expenses for the use of an
entertainment facility. However, these expenses are subject to the
directly-related and associated tests and to the 50% limit, all
discussed later.
What Entertainment Expenses Are Deductible?
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