Entertainment Expense Deductions

Deducting Business Entertainment Expenses

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Business Entertainment Expenses

IRS Topic 512

Vacationing and commuting to work are not deductible but, if you travel on business or entertain for business, you may be entitled to a deduction.

Unreimbursed employee travel expenses are subject to the 2% of adjusted gross income floor for miscellaneous itemized deductions. If you are self-employed, these expenses are deductible as a business write-off and are not subject to the 2% floor.

To deduct travel costs for transportation, meals, and lodging, generally you must be "away from home" (outside your area of work). For one-day trips within your general business area, transportation costs are still deductible, but your meals are not deductible.

Generally, only 50% of food and beverage ("meal") and entertainment expenses are allowed as a deduction. For exceptions to the 50% limitation, refer to Publication 463, Travel, Entertainment, Gift and Car Expenses.

Employees who are reimbursed for travel and entertainment costs by their employer under an accountable plan can not claim any deductions for these expenses (the employer deducts them). These reimbursements are not income reported to employees on Form W-2.

You must have records to prove the business purpose and the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained. For further information on record keeping, refer to IRS Topic 305.

For non reimbursed expenses, use IRS Form 2106, or Form 2106-EZ to report business entertainment expenses. These expenses, including expenses that exceed the reimbursement under an accountable plan, are carried over to Form 1040, Schedule A, and are generally subject to the 2% of adjusted gross income limit. Refer to Topic 508 for more information on the 2% limit, Topic 305 for more information on record keeping requirements, and Publication 463 for a definition of accountable and non-accountable plans.

If you are self–employed, use Form 1040, Schedule C, or Form 1040, Schedule C-EZ, or if you are a farmer, use Form 1040, Schedule F to deduct these expenses.

For more information refer to IRS Publication 463.

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