2011 Legislators' Tax Guide: Entertainment and Meal Expenses at Home

I am required to meet with a constituent regarding a state problem and I meet him for breakfast, lunch or dinner and pay for his meal. Can I deduct this as a tax expense?

Yes. Remember to keep up your expense diary as to who, why, where, when and how much. Also, remember that only 50 percent of the cost is deductible.

Because of my position in the community, I occasionally entertain other elected officials such as mayors or members of city council, primarily for the purpose of maintaining communications, exploring each other's problems and determining common solutions. Can I deduct this expense?

Yes, as long as it is related to your legislative position and you can show the business purpose for the entertainment or meeting. Here again, it is necessary to keep an itemized record to indicate the date, place, who was there and the purpose of the meeting. Once more, only 50 percent of the entertainment expense is deductible.

The following table summarizes the rules and definitions pertaining to the deduction for business related entertainment expenses.

General rule

You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test.

Definitions

  • Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client.
  • An ordinary expense is one that is common and accepted in your trade or business.
  • A necessary expense is one that is helpful and appropriate.

Tests to be met

Directly-related test

  • Entertainment took place in a clear business setting, or
  • Main purpose of entertainment was the active conduct of business, and
  • You did engage in business with the person during the entertainment period,
  • You had more than a general expectation of getting income or some other specific business benefit.

Associated test

  • Entertainment is associated with your trade or business, and
  • Entertainment directly before or after a substantial business discussion.

Other rules

  • You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense.
  • You cannot deduct expenses that are lavish or extravagant under the circumstances     
  • You generally can deduct only 50% of your unreimbursed entertainment expenses.