How to Legally Write Off Meals & Entertainment Expenses- Even a Round of Golf

By Scott Aber

If you are a business owner or self-employed, let Scott M. Aber, CPA ask you one simple question.  How often are you entertaining or eating out with someone who is not a client, prospect, referral source or business colleague?  Certainly, if you work in an industry where you must market yourself like real estate, insurance or investments, the answer could very well be “never.”  The nature of your business, and the manner by which you must conduct your business, require an indispensable element of entertaining- entertaining that costs money.  For government and regulatory tax purposes, you can actually write off most of these meal and entertaining expenses.  In fact, be sure you deduct every meal where you legitimately advance your business but make sure it is done legally, with every “i” dotted and every “t” crossed.  Let’s use a round of golf as an example of how this whole process works.

The basic rule for deducting entertainment costs is that the entertainment or “fun” has to follow or precede a legitimate business discussion. The basic rule for deducting meals is similar in that, along with the meal, must come a “bona fide” business discussion. These discussions must take place with clients or patients, prospective clients or patients, referral sources and business or professional colleagues. You want your business to succeed and will do what it takes to land a new partnership or make a sale- sometimes, this lands you on the golf course.

IRS Regulations & Laws – Keep Write Offs Safe from Audits

When entertaining and paying for meals, the IRS only gives you one chance to properly deduct your expenses from your potential tax payments.  If not done properly, misfiled or erroneous deductions can cost you money or render your business and you significant fines.  It is crucial that you know the ins and outs of the full IRS Publication 463 on Travel, Entertainment, Gift and Car Expenses.  This document is extensive and confusing, so Scott M. Aber, CPA has outlined a summary of what you need to know.  Going forth with our golf course business meeting as a starting point, you should know that the IRS has outright stated the golf course is not a suitable venue for a business discussion because of the myriad distractions.

What is the solution?  Knowing that, in order to be deemed tax deductible, any “fun” needs to be preceded or followed by a legitimate business discussion- have your business meeting over a meal in the golf course clubhouse.  Now, you might be thinking that this meal or snack is going to offset any benefit received by deducting your golf outing because now you must pay for food expenses.  Well, you’re in luck because you can also classify any clubhouse costs as a directly business related entertainment deduction.

Write Off Documentation Details

Once you have passed the basic test as to whether or not your golf trip (or other entertainment expenses) and related clubhouse meal is tax deductible, you must make sure that you maintain proper documentation to support your claim.  Simply put, document everything.  Maintain a professional journal that will keep your notes safe and accessible for the future- when you file taxes and if the IRS has questions about your tax filings.  In your professional diary, explicitly document and itemize your conversations and how they pertain to business dealings.  Each business meeting must, at the point in time you had the meeting, been viewed as some opportunity for the possibility of furthering and benefiting your business ventures.  This means documenting how:

• The individuals you took golfing must be existing clients and you must have discussed altering or increasing the business you already conduct together.
• The individuals you took golfing must be potential clients and you must have discussed the possibility of a client relationship.
• The individuals you took golfing must be potential business partners and you must have discussed the possibility of teaming up to tackle specific business-related issue.

And, remember, this golf outing is just an example.  You can deduct a variety of other entertainment expenses like tickets to the theatre or tickets to a game, provided the entertainment occurs directly before or after a substantial and certifiable discussion directly related to the active conduct of your business.  If this stands, you are permitted to deduct the face value of tickets, greens fees, as well as food and beverages, parking, taxes and tips. The IRS wants details- lots of them.  The more specific you are and the more back-up information or paperwork that you can provide to sustain the validity of a deduction, the better off your business is and the more entertaining work actually becomes.

Also, do you ever entertain at home?  Do you discuss business when you do it?  Are you deducting those meals, too?  There’s no requirement that you dine out.  So, don’t forget to deduct home entertainment expenses too following the process already explained.

The Importance of Being a “Primary” Expense in Write Offs

One thing that Scott M. Aber, CPA cannot overemphasize is the importance of a tax deductible entertainment expense being directly associated with a primary purpose that is purely business-related.  If you are traveling and deducting costs like airfare, lodging, rental vehicles, meals or even laundry, you absolutely must be traveling for a business convention, client meeting or organization gathering.  It should be noted that the same regulations apply to independent or self-employed persons although these individuals are traditionally more likely to be audited by the IRS.  And, if your business is already reimbursing your expenses, you are not eligible to file for another reimbursement from the government in your taxes.

Don’t let the word “primary” deter your trip, however.  The “primary” word is actually referring to normal business hours so, while business must be what is taking place during the workday, it does not have to be taking place in the evening or on the weekends.  It is almost as if you are in your normal locale where you have time to lounge on the beach during your free weekend hours and time for a movie on an evening night.

Receipts – the Devil in the Details

The IRS is not just going to take your word that your meals and entertainment expenses are legit because you keep a detailed journal.  In the unfortunate event that your business or you are audited, your meticulous written records need to be backed up by receipts and records of attendance at seminars and meetings.

Treat your receipts and other paperwork like gold.  Back up your notebook or journal to another notebook or journal and definitely put it in electronic form for further safekeeping.  It is also very helpful to have a separate checking/savings account that is linked to a credit card- these accounts should just be for business.   “Be prepared to justify every single expense if necessary,” says Scott M. Aber, CPA.

As a business owner, you are entitled to the maximum tax benefits that apply to your situation.  Do not let lengthy and confusing IRS laws prevent you from keeping money that belongs to you.  Contact Scott M. Aber, CPA to  help you make the most of your available deductions for meals and entertainment so you don’t miss a deductible dollar!