5 Tips For Deducting Entertainment Expenses With Your Small Business
When filing your annual taxes, one of the main types of deductions that may take to calculate are entertainment expenses. There are many rules for this type of deduction and for a lot of expenses, it's a good idea to consult with professional help. The following five tips will ensure that you are making the most out of your deductions without limiting them at the same time.
A majority of entertainment expenses are only 50% deductible. When the event is offered as a public occasion, then the percentage increases to 100%. For example, if you host a BBQ and promote your services, then all of the expenses for the public barbecue can be written off on your taxes. The advertising for these events needs to be "open to the public" and not limited to a special guest list.
Business Lawyer Tips
When figuring out your small business expenses, the one thing you want to avoid is audits. If the IRS finds a problem with your deductions, then they could eliminate them all together. This is why it's important to consult with a business lawyer. They can look over receipts and help break down the deductions as best as possible.
When considering the difference between an entertainment expense and just a night out, you have to think about the business services that you're offering. At some point, you have to present your services or products to qualify it as a proper business expense. The time comparison can be any length. For example, you can talk for 10 minutes about a new product while hosting the party for an additional hour.
One thing that the IRS is on the lookout for during entertainment deductions is overspending. Any type of business meal or party should be within a reasonable amount. There are no set guidelines on a spending amount limit, but the IRS will have triggers when the spending is much higher than income or other money sources within the business.
The part of hosting an employee party is that they are 100% deductible for your employees. This is why it's important to keep track of party goods, food, and entertainment that is offered during a party. The more receipts and proof you have, the easier it will be to make the deductions.
An area where it gets more complicated is when employee parties are mixed with family members. Family members of you or other employees do not fall under the deduction guidelines. This means that the whole party budget needs to be split among all of the guests. For example, if you have 8 employees and 2 family members, $800 of a $1,000 budget will be deductible on the taxes.
It's important to consult with a professional business lawyer like Lawrence L Goldberg law Associates so all of the numbers can be calculated and checked as needed.