Entertainment Expenses of Non-Employees
Although travel costs of a non-employee spouse, dependent, or other person may not be deducted, you may deduct the cost of such person's participation in the entertainment of business clients at conventions or business trips under certain conditions.
- Directly related dining or entertainment (business discussion during dining or entertainment):
- If a spouse or other person participates in the dining or entertainment that qualifies as directly related entertainment under the generally related test you may deduct entertainment-related costs for your spouse or other person(s).
- Under the generally related test you must be able to show:
- A business motive for the dining or entertainment.
- You had more than a general expectation of getting future income or other specific business benefit (other than goodwill).
- A business meeting, negotiation, or discussion took place during the period dining or entertainment.
- If audited, the IRS will want evidence that a business meeting, negotiation, or discussion took place during the period of dining or entertainment.
- If no discussion took place, you must prove that you would have discussed business had it not been for circumstances beyond your control.
- Goodwill entertaining (business discussion before or after dining or entertainment instead of during entertainment):
- This is where there is a substantial and bona fide business discussion directly before or after the dining or entertainment (not during dining or entertainment like in the directly related test mentioned above).
- An officially scheduled meeting at a convention is generally considered a bona fide business discussion.
- Generally, you may deduct the cost of goodwill entertaining of:
- Business associates and their spouses, and
- Yourself and your non-employee spouse or other person(s) participating in the dining or entertainment.
- Bear in mind, food, beverages (including tax and tips), and the cost of the entertainment are only 50% deductible.
- In addition, only 50% of the face value of a ticket to an event is deductible regardless of what you may have actually paid (for example, to a scalper).
- Transportation to and from the dining or entertainment facility are 100% deductible.
Travel Expenses: Entertainment Expenses of Non-Employees-Example.