Deducting entertainment, meals with clients not easy

By Joyce M. Rosenberg
Associate Press

NEW YORK — Taking clients or customers out for dinner is a standard way for a small business owner to cement good relationships. Dealing with such expenses on your income tax return isn't always a straightforward process.

The IRS has very different rules for how much you can deduct for meals and entertainment.

For meals and entertainment, the general rule is you can deduct 50 percent of what you spend on restaurant dinners or taking clients to shows or sporting events — as long as the expense can be considered an ordinary and necessary part of doing business.

As always, there are a few loopholes and pitfalls to watch.

With entertainment, for example, if you're traveling or attending a trade show and take a client out for dinner, you are permitted to deduct 100 percent of the check, said Bill Egan, a certified public accountant with Egan & Associates in Pittsburgh.

And if the entertainment is a company party for employees that you also invite clients to, then you can deduct the full cost of that event, Egan said.

Some of the pitfalls include the fact that you can't deduct just any activity as entertainment. "It has to be in an environment that's conducive to doing business," said Dennis Kroner, a CPA and financial planner with Pitt Ryan & Linnear in Chicago.