Do you take Customers and prospective Customers on weekend trips to help build your business? Can you deduct the expense related to these trips from your taxable income?
Yes – the expenses related to these trips are a valid tax deduction. If you keep good records that prove the trips are related to business, you can deduct a lot of the expenses related to the trip.
If you take Customers fishing or hunting and use equipment that you rent or own, some of the deductions will be denied, but we’ll get into more detail on that later.
There are four tax law requirements that you need to meet in order to make these entertainment expenses deductible:
- Business Reason – You need to come up with and record specific reasons why you expect the trip to generate income or benefits to your business. Even if the trip doesn’t result in a sale, you can still deduct the expenses.
- Connecting Business with Entertainment – The business activity must occur at a similar time of the entertainment. Business activities include: negotiating sale terms, explaining products or services, strategizing business development and opportunities, and discussing customer concerns and questions. You will meet this requirement if the business and entertainment activities occur on the same day. If the business activity occurs on a different day, you’ll need to document the reason why. For example, if your customers had to travel from out of town, you might need to split the activities. Remember, it’s always FORM OVER SUBSTANCE with the IRS!
- More Business than Pleasure – This requirement is where most business owners often fail. The overall purpose of the trip MUST BE MORE related to business than pleasure. This is not merely a question of time. You can spend more time on entertainment activities during the trip and still deduct the expenses, as long as you can document that the purpose of the trip was for business activities. Again, keep good records!
- Paying for the Right People – Tax law lists the following groups of people as approved guests to meet this requirement: “Clients, Customers, suppliers, employees, agents, partners and professional advisors, whether established or prospective”