With a business dinner, it is imperative that there is as at least one person present who is not an employee of the company. Otherwise, this makes it an employee dinner/party—something that needs to be handled quite differently when it comes to filing taxes. Although such events usually involve a current or potential business partner, it is not explicitly stated by the IRS that this needs to be the case. It could also be an event involving the likes of:
- Freelancers
- Public officials
- Journalists
- Advisors
- Tax authority auditors
Along with these external guests, it is also possible to invite employees who can support you during this business endeavor. When it comes to making tax deductions, these employees can only be considered as another guest. The cost of their meal, drinks, etc. can only be seen as a 50 percent deduction and not a business expense that is 100 percent deductible.
With such occasions, the client feeling at ease and comfortable should be a priority for you and you should not hesitate to invite additional guests. For example, if a client or business partner brings their spouse to a meal then the cost of their food, drinks, etc., this is also tax deductible. Furthermore, this will allow you to bring your spouse or significant other and have their entertainment expenses deducted as well. The same thing applies to children, i.e., if your guest brings their children then you can also bring yours and these costs will also be 50 percent deductible. However, it is crucial that your client’s extra guests are present, otherwise, you cannot include your spouse, children, etc., in your tax deductions. This is the case even if your spouse is your significant other is your business partner or even a client.
Although it might seem like an obvious thing to say, in order to claim the expenses, you yourself need to be present at the event. In the past, people have bought event tickets for clients with the hope of being able to write them off as a business entertainment expense. Purchases like this are actually only subject to the ‘gift expense’ deduction, which is $25.