This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ.
Table 8-1. When Are Entertainment Expenses Deductible?
The following is a summary of the rules for deducting entertainment expenses. For more details about these rules, see Publication 463.)
|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. |
- 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 field of business, trade, or profession.
- A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business.
|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, and
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 precedes or follows 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.
These are the ordinary and necessary expenses of traveling away from home for your business. You are traveling away from home if both the following conditions are met.
- Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work.
- You need to get sleep or rest to meet the demands of your work while away from home.
Generally, your tax home
is your regular place of business, regardless of where you maintain your family home. It includes the entire city or general area in which your business is located. See Publication 463 for more information.
The following is a brief discussion of the expenses you can deduct.taxmap/pubs/p334-032.htm#en_us_publink100025382
You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. taxmap/pubs/p334-032.htm#en_us_publink100025383
You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. taxmap/pubs/p334-032.htm#en_us_publink100025384
You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. taxmap/pubs/p334-032.htm#en_us_publink100025385
You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. taxmap/pubs/p334-032.htm#en_us_publink100025386
You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. In most cases, you can deduct only 50% of your meal expenses. taxmap/pubs/p334-032.htm#en_us_publink100025387
You can deduct the costs of dry cleaning and laundry while on your business trip. taxmap/pubs/p334-032.htm#en_us_publink100025388
You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. taxmap/pubs/p334-032.htm#en_us_publink100025389
You can deduct the tips you pay for any expense in this list. taxmap/pubs/p334-032.htm#en_us_publink100025390
For more information about travel expenses, see Publication 463.taxmap/pubs/p334-032.htm#en_us_publink100025391
You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. In most cases, you can deduct only 50% of these expenses.
The following are examples of entertainment expenses.
- Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events.
- Providing meals, a hotel suite, or a car to business customers or their families.
To be deductible, the expenses must meet the rules listed in Table 8-1. For details about these rules, see Publication 463.
You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. For details, see chapter 11 in Publication 535. That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement.