What is the IRS criteria for the Meals and Entertainment Expenses to be deductible?
According to the IRS, "Taxpayers 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."
What is Entertainment?
This includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client.
What is an Ordinary Expense?
This is an expense that is fairly common, usual and accepted in the taxpayers field of business, trade, or profession.
What is a Necessary expense?
This is an expense that is commonly required for the taxpayers business.
What is the Directly-related test?
This test requires that "the Entertainment takes place in a clear business setting, or main purpose of entertainment was the active conduct of business, and the taxpayer did engage in business with the person during the entertainment period, and the taxpayer had more than a general expectation of getting income or some other specific business benefit"
What is the Associated test
This test requires that the "Entertainment has to be associated with the taxpayers trade or business, and the Entertainment directly precedes or follows a substantial business discussion."
IRS Specified Other rules ·
The IRS has specified that a taxpayer cannot deduct the cost of their meal as an entertainment expense if the meal expense is being claimed as a travel expense. Furthermore, the IRS has specified that a taxpayer cannot deduct expenses that are lavish or extravagant under the circumstances. It is also worth noting here that a taxpayer may generally deduct only 50% of entertainment expenses incurred in connection to their trade or business!