The Associated Test

If you cannot meet the directly related test, you may still qualify for a deduction by meeting the associated test.

Under the associated test you must be able to show that directly before or after the dining or entertainment a substantial and bona fide business discussion occurred related to the active conduct of your business.

As a general rule, the IRS says dining and entertainment should occur on the same day. If this is not possible, be prepared to explain why. For example, if an out-of-town customer arrives at your business late in the day, you may entertain the customer that evening, then discuss business that next day. This would be an acceptable reason for not complying with the general rule.

A substantial business discussion doesn't have to be for any particular length of time and it doesn't have to be longer than the entertainment. Moreover, you don't have to discuss business during the period of entertainment.

Goodwill Entertaining

The associated test can apply to goodwill entertaining. Under this test you can entertain in a nonbusiness setting, like a nightclub, restaurant, theater, or sports arena.


  • During the day you conduct substantial business discussions with business associates.
  • Later that evening you take your associates and their spouses and your spouse to dinner and a play.
  • Dining and entertainment expenses are deductible for yourself, your spouse, and your associates and their spouses.


  • Meals and beverages, including the tax and tip, are only 50% deductible.
  • Only 50% of the face value of the theater tickets are deductible (even if you paid more).
  • However, transportation expenses to and from the restaurant and theater are 100% deductible.

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