

For many entrepreneurs, travel and entertainment (T&E) tax deductions can be a minefield. Can you take a prospect to see “Hamilton” and deduct the cost of those front-row theater tickets? If you fly your family with you on a business trip in Maui, can you deduct their airfare and hotel expenses? What if you rent a Ferrari to drive a client along the Maui coast?
Certain expenses for business travel are deductible as long as they meet two criteria: They must be “ordinary and necessary” in the course of doing business, and they must be documented.
You can take deductions for business-related expenses even if part of the trip includes personal vacation time. However, you can’t deduct expenses for family members accompanying you on a business trip unless there’s a business reason for them to attend.
Suppose you go to Maui for a three-day trade show and take your husband and son along, then spend two days sightseeing as a family. You can deduct your expenses for the three days of the convention, but not the personal days. You can’t deduct your family’s expenses for any part of the trip unless there’s a genuine business reason for them to attend (for instance, if your husband is working in your trade show booth).
The IRS defines “entertainment” as “any activity generally considered to provide entertainment, amusement or recreation.” This can include entertaining guests at:
A business discussion doesn’t have to result in actual sales or business in order for the entertainment expenses to be deductible. However, the expenses do have to be “directly related to” or “associated with” conducting or discussing business.
Entertainment that takes place in a business setting is directly related to business. Examples include hosting a hospitality suite at an industry conference or taking a client out for dinner after a trade show. (You can deduct a meal as a travel or entertainment expense, but not both.)
These types of entertainment typically take place in a setting not really conducive to discussing business, such as a nightclub, a theater, or a sporting event.
However, if the entertainment takes place before or after a substantial business discussion, it’s generally considered associated with business. If a client has a meeting with your team on Monday, flies into town on Sunday afternoon, and you take her to a baseball game on Sunday evening, the expense of that entertainment is deductible.
Generally, travel and entertainment expense deductions are limited to 50 percent of the expense. To prove your deductions are legitimate, you must keep detailed records. It’s a good idea to record expenses on a weekly basis (more often during intense business travel). Records that are “timely kept” (that is, recorded soon after the event) carry more weight with the IRS than expenses you reconstruct a year later from memory.
When recording expenses for travel and entertainment, keep receipts and be sure to note the amount, date, location, and business reason for the expense.
Eliminate the hassle of paper receipts by using an expense-tracking app to scan, or photograph receipts with your smartphone. Look for one that integrates with your accounting and payroll software and offers reporting features to help you monitor expenses.
IRS Publication 463 Travel, Entertainment, Gift, and Car Expenses, has more information and examples to help you understand travel and entertainment deductions. Because this area is so complex, however, be sure to talk to your
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