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How to deduct 100% of business entertainment meals

By
Real Estate Agent with BANCROFT REALTY LLC 0637667

Can you deduct 100% of business entertainment?

The real estate business is a people business.  You can’t sit in your office and expect to meet clients, tenants, prospects, bankers, adjusters, appraisers and investors.  You are going to be out and about and you are going to eat.  The question is “Can I deduct 100% of my meal costs?”  The simple answer is yes, if you follow the rules.  These rules are laid out in 26 CFR 1.274-2.  Don’t worry.  This article will explain it.

Business Entertainment Example

The short version says you can deduct your portion of the business entertainment meal if you have business reason to be there.  You must transact business with someone.  For example, you and Bob go to lunch and discussed the latest methods to get listings.  The tab is $30.  You pay your portion and Bob pays his.  You both deduct your amount of the lunch.  In this case, both you and Bob actively pursued future business. 

Business Entertainment Rules

Let’s look at the rules.  There are two rules associated with the example above.

1)           The expenditure was directly related to conduct your trade or business.

2)           Either preceding or following the expenditure, there was a bona fide business discussion. 

How to document business entertainment

As with any tax deduction, you must document that you met the requirements.  In the example above, you will get a copy of the receipt and note your portion of the meal.  You will write down who you transacted business with and what was discussed.  You do not need a long list of notes of the discussion.  Simply stating “discussed future business opportunities” will suffice.

Can you deduct your spouses meal?

A big investor is coming and you want to meet them.  Your husband is with you as you go out.  Can you deduct his meal as business entertainment?  Yes.  The states

The spouse of a person referred to in paragraph(c)(3)(iv) of this section will be considered closely connected to such a person for purposes of this subparagraph.

You must document who, what and where.  The expense must be for transacting business.  Good-will events do not meet the test.  You cannot take a group out for the night as a good will gesture and take a deduction.  You also cannot take a group a night club and expect to deduct it.  Nightclubs are loud and the IRS does not anticipate business discussions in such an environment. 

Be sure you do not try to deduct taking your employee to lunch 5 days a week and deducting it.  The IRS will claim you are trying to offset normal living expenses.  Limit the number of times you take the same person out to less than 30 times per year.  Do not abuse the rule.  If you are deducting 300 meals per year, then you will raise a flag.   Remember, bulls get fed and hogs get slaughtered. 

Tips to help you be audit ready

The expense must be directly related

  • You intend to do business at the time you spend the money
  • You discuss a topic that is intended to result in future business
  • The main reason you are there is do business
  • You spoke with person with whom you intend to do business

The expense occurs in an appropriate setting

  • The person you are with knows you want to conducting business
  • You spend the money in such a way to further your business
  •  This is not a meaningful social or personal meeting

It is a business setting

  • A nightclub or theater is not conducive for conducting business.  The business discussion can occur before or after the expense.  It must be documented.

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DISCLAIMER

This article is for training purposes only.  Jody Wall does not warranty the accuracy of the training.  It is not intended to be legal or accounting advice.  Seek competent consultation for your particular situation. Readers assume all responsibility for their decisions.

Published at  http://blog.jodywallrealtor.com/business/business-enterta…nt-tax-deduction.html

Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great information to help lower our taxes, Jody.  We may need to discuss this further over lunch.  

Aug 27, 2016 08:55 PM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Great post - You are going to be very valuablehere n the Rain! and Gabe Sanders is right- we all have to get together to discuss this over lunch! 

Aug 27, 2016 09:58 PM
Mark Robinson
Geneva Financial, LLC - Beachwood, NJ
Honesty, Integrity, Service

Great post. I go out to business luncheons often and regularly pick up the tab.

Aug 27, 2016 10:20 PM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Jody Walls, another great post again.  What about drinks, can you deduct that?

 

Aug 28, 2016 12:28 AM
Jody Wall

You can deduct golf green fees, drinks and other items if you follow the rules.  I cannot put everything in one post.


Before I started AR, I wrote several blog series.  I have posted the first blog in 4 different series.  I want to see the reaction that they create.  I can then tailor the feedback into the rest of the blogs.

Aug 28, 2016 12:50 AM
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

IRS or tax filers are responsible to validate all receipts on entertainment. Newer agents often get challenged for over reporting entertainment not directed to any sales.

consultantation (2nd last sentence)..... ABC

Aug 28, 2016 12:40 AM
Jody Wall

Thanks.  It is good to know the buttons.  I am a learn by doing person.  The reason I am blogging for members before going public is to work out some kinks and get experience.

Aug 28, 2016 12:47 AM
John Pusa
Glendale, CA

Jody Wall These are very helpful tips to deduct business entertainment meals.

Aug 28, 2016 06:45 AM