ITC - What are deductible Entertainment Expenses?
Hello fellow Tax Payers,
We wanted to release a post today that focuses on a very big topic in the tax world - Entertainment Expenses. I’m sure that we’ve all at one time or another heard a friend or colleague say, “I’ll get the check this time, I can write it off”. For those of you who don’t know what this means, that’s what this blog post will be all about.
Click Here to find out more information straight from the big guys - the IRS IRS Tax Topic 512 - Business Entertainment Expenses
First and foremost - if you are an Employee of a company that Reimburses you for any of your expenses you CANNOT claim these expenses on your own tax return. Your company is the one who will claim them and they will be reimbursed to you in your checks - However, these reimbursements are not income reported on your W-2. So, if your Employer is just lumping it into your check every month as regular additional income, then you need to say something immediately; otherwise, you will be taxed on that money when it should be categorized as a Reimbursement!
Now - If you have un-reimbursed expenses as an Employee, then you may claim them; however, they are subject to the 2% of adjusted gross income “floor” under the miscellaneous itemized deductions on your tax return.
(If you are a Self-Employed individual, than these expenses are permitted as business write-offs and are not subject to any 2% “floor”)
** Commuting expenses to and from Work ARE NOT deductible
** However, if you are traveling on business or are required to entertain for a business purpose than you may be entitled to deduct these expenses.
- Also, when traveling for work and deducting these expenses (food, rental cars, trains, flights, hotels, etc.), you must be “outside of your area of usual work”; a.k.a. - away from your home “base”.
How much can I write off?
Okay friends, so typically the IRS only allows a tax payer to write-off Fifty Percent (50%) of your “meals” and “entertainment” expenses. So, please keep that in mind when you are out with your clients and more than willing to pick up any bill at a restaurant or other establishment. You WILL NOT get to write-off every Dollar ($) that you spend - only 50% of it.
However, there are some limited exceptions to this rule. If you want to read more about the cases where exceptions may be granted - Click Here to visit the IRS website IRS Publication 463 - Travel, Entertainment, Gift - Business Entertainment Expenses
Do I need Proof? a.k.a. - Reciepts - YES!
If you are planning to deduct your permitted expenses on your tax return, you MUST have records in order to support your expenses. The IRS have illustrated a few specific points that they consider to be valid when supporting your expense.
Your records must prove -
A. A Business Purpose
B. The Amount of EACH expense
C. The Date
D. The Location/Place of where the Entertainment took place
E. The Business relationship to the parties in attendance
Also, the IRS has issued a few guidelines on appropriate “records” and “record keeping” - see more information here: IRS Topic 305 - Records and Record Keeping
Until next time…