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Limits and Restrictions on Entertainment Expenses
 There are limits and restrictions on the deductibility of
entertainment expenses. For employees who are "fully reimbursed"
(see below), the limits are imposed on the employer, not the
employee. Entertainment must be either directly related to your
business or associated with it, and must be substantiated. (We’ll
cover this below.)
Only half of entertainment expenses and business meals are
deductible. Further, meals and entertainment must be "ordinary and
necessary" and not "lavish or extravagant." Please see the away
from home travel expense discussion for more on these rules.
If you entertain at home, you don’t get a deduction for whatever
it would have cost to feed and/or entertain yourself and your
family.
Rentals for skyboxes and other luxury boxes face a double
limitation. If the rental covers more than one event, you can’t
take into account more than the cost of a non-luxury box seat (per
person, per event). Deduction for those seats is then subject to
the 50% entertainment expense limit.
Deductions are disallowed for depreciation and upkeep of
"entertainment facilities"—yachts, hunting lodges, fishing camps,
swimming pools, and tennis courts. Costs of entertainment provided
at such facilities are deductible subject to entertainment expense
limitations.
Dues paid to country clubs or to social or athletic clubs are not
deductible. Dues you pay to professional and civic organizations
are deductible as long as your membership has a business purpose.
Such organizations include business leagues, trade associations,
chambers of commerce, boards of trade, and real estate boards.
Tip: To avoid problems qualifying for a deduction for dues paid to
professional or civic organizations, document the business reasons
for the membership—the contacts you make and any income generated
from the membership.
Entertainment costs, taxes, tips, cover charges, room rentals,
maids and waiters are all subject to the 50% limit on
entertainment deductions.
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