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Tax Deduction: Entertainment for Customers and Clients

  Sanjiv Gupta CPA  Published 
Tax Deduction: Entertainment for Customers and Clients

A crucial part of the business is building and nurturing relationships with clients. While doing this, the business owners meet clients, customers, and business partners during social events and occasions. The expenses incurred on these are considered by the IRS for tax exemption. Tax deductions and considerations are an very essential part of business interactions. Business owners and employees are allowed to take a federal tax deduction that amounts to half of their qualifying costs when they entertain their customers and clients. Although the IRS does not allow complete tax deduction, approximately 50% of the deduction is allowed on all kinds of entertainment. The pointers mentioned below would help to understand how tax deduction would help in entertainment for customers and clients.

  •  Expenses incurred in almost all kinds of business recreational activities that involve a business owner and clients can be considered for a tax deduction. Entertainment deduction is applicable if that form of entertainment relates to the specific business field. Activities include going to nightclubs, theaters, films, fishing trips, hunting, athletic club, and even vacations.
  • As per the IRS, meals, beverages, tips and taxes combine to form entertainment expenses. Tax deduction helps the entertainment of customers and clients whereby the business owners and employees pay on behalf of their clients. In return, they get a 50% deduction on the meal prices. When both the parties are found to divide the bills, neither of the two can avail tax deduction of the meal. Thus, if you plan to take your client out for lunch in order to discuss a new project and the objectives, you can go for a deduction in taxable income. However, if you are self-employed, then IRS would let you deduct a part of the entire lunch bill as you travel or meals and entertainment business costs when you successfully comply with certain criteria.
  • Tax deduction for the entertainment of customers and clients can happen when entertainment fulfills personal and also business agenda. In such a case, an individual would get a deduction for a part of the expenses that he incurs for business reasons. Such business expenses include the taxes and tips that are paid on meals, room rents, parking fees, and nightclub cover expenses.
  • It may happen that an employee pays for business-related entertainment from his pocket and later gets reimbursement from the employer. But in a situation where the employee does not get the cost reimbursed by the employer, then the former can get a 50% deduction on tax for the difference that the employer compensated in return and the actual amount that he paid from his own pocket.
  • The tax deduction clause can help you in keeping customers and clients entertained if you keep all the records. You should keep tangible records handy at the time of the IRS audit. Such records include itemized restaurant receipts and credit card slips correlating to the meals during a business meeting.


But just because tax deduction can help entertainment for customers and clients, you cannot exploit it.