Entertainment Expense Deductions for Businesses

If you chose to entertain customers, or other areas of your business, you may be able to deduct certain expenses that are deemed ordinary and necessary for carrying on business. These expenses may be deductible if they are either directly related or associated with the business.

You must have proof that the expense relates to the business, as well as the cost, date, and location of the entertainment. You may also need to provide the business relationship of the people you entertained. In most cases, you are only able to deduct 50% of meal and entertainment expenses as a deduction.

Entertainment expense reimbursements should not appear as income on your W-2 if you are an employee subject to reimbursement through an accountable plan. You cannot deduct reimbursed expenses. However, if you received no reimbursement, or you were reimbursed from a non-accountable plan, you can deduct your entertainment expenses through Form 2106, Employee , or Form 2106, Unreimbursed Employee Business Expense. These deductions carry on to your tax return as an itemized deduction, and is typically subject to a 2% adjusted gross income limit.

Deductions may be taken by individuals who are self-employed by using Form 1040, Schedule C, Profit or Loss From Business, or Form 1040, Schedule C-EZ, Net Profit From Business. If you are a farmer, use Form 1040, Schedule F, Profit or Loss from Farming, to deduct these expenses.