As of the new tax bill which has been signed into law, entertainment expenses are no long deductible, which totally negated this entire blog post.
If you’re looking for pro-active tax planning, and help mitigation your taxes in your small business, I highly recommend contacting Nuance Financial Tax and Accounting.
Can you Write off Golf Clubs?
Can you Write off a Baseball Game?
I’m not an accountant, and this is not legal tax advice. But I built a tax firm and I know the best resources for small businesses.
These are Tips from Sandy Botkin’s Book – How to Lower Your Taxes Big Time!
Botkin’s Book Teaches How To Maximize Tax Deductions.
Rather, I am an entrepreneur that has stumbled upon one of the most helpful tax planning books available. Sandy Botkin is a former IRS agent that has since dedicated himself to creating books and resources for small business owners to help lower your taxes big time.
While I work with an accounting firm here in Minnesota that I built from the ground up, these articles are going to be all about ideas that you should latch on to and bring up to your tax professional.
Here’s another tip: Buy Sandy Botkins books! He’s great.
In the second chapter of his book Lower Your Taxes Big Time! 2017 to 2018 Edition: Wealth Building, Tax Reduction Secrets from an IRS Insider he provides some really interesting ways to really maximize deductions.
Much of what I share in this article will be something that I learned from Sandy’s book. I think it’s incredibly helpful for small businesses and entrepreneurs to understand ways that they can mitigate their taxes. One of the most difficult things that small businesses face is that most tax firms and accountants have not set up their business in a manner that allows for proactive planning so that you can take advantage of some of the things Sandy’s book talks about.
This book will show you tips your CPA doesn’t know or is incapable of applying to your business.
A Tip from “How to Deduct Golf, Season Tickets, and Even your Spouse’s Meals” – Chapter 2 of Sandy’s Book
Entrepreneurs are always trying to align their lifestyle with the tax code so that they can pay as little in taxes as possible.
Just about every business owner I know that likes to golf is asking about how they can deduct every round of golf possible and how they can transform a wonderful night out with their spouse into a business write off. So you’re probably asking: If you can deduct golf as a business expense, can I deduct dinner with my spouse? How can I write off more things for my business?
Before we dive into any of these things that Sandy talks about, I need to preface that he spends a great deal of time talking about the importance of accurate bookkeeping and keeping a tax journal.
In his book, Sandy says:
“Meals and entertainment deductions are limited to 50% deductible.” (Botkin, Pg.8)
When do you have to keep receipts? According to Sandy, “No receipts are needed for entertainment expenses that are under $75 per expense.” (Botkin, pg.8)
Sandy says that you should keep every receipt possible, but that the IRS only requires you to keep receipts for transactions or meals and entertainment that are over $75.
What are the requirements to deduct my meal with a prospective client?
There are four requirements for deducting your meals:
1- A business meal must be arranged for the purpose of conducting specific business. Your prospect must reasonably expect a business reason for the meal or entertainment.
2- You must discuss business before, during, or after a business meal to qualify for the business meal deduction.
3- The meal must take place in a place that is conducive to a business discussion.
4- Even if a receipt isn’t necessary, you must substantiate your meal or entertainment adequately.
Sandy goes on to say that there are five questions that business owners will need to answer in order to audit proof your entertainment expenses forever:
Audit-Proof Entertainment Deductions by Answering These Questions:
1- Who did you entertain and what is your business relationship with that person?
2 – Where did you go for the entertainment? (A charge slip sheet is usually the easiest way to communicate this.)
3 – When did the entertainment take place? The easiest way to answer this is with a diary-style text journal.
4 – Why did the entertainment take place? Of the five elements, Sandy says that this is the most important. The entrepreneur should state the exact nature of the business activity and discussion that’s going on with special attention paid to specific business. You should be able to give some information here and not just a couple of words.
5 – How much did the entertainment cost? Remember that once it’s over $75, you should retain what’s called documentary evidence such as a receipt, a credit card copy, or some sort of voucher.
After talking about these five elements, Sandy then notes that it’s important to remember that if you are in a position to answer these five questions to the IRS, you need to do so in a timely fashion. This means that you should keep an organizer that contains this information near the time of expenditure.(pg. 10)
How a Business Owner can Deduct Fun
Deducting theater tickets, golf fees, movies, sports tickets, and other “associated entertainment “expenses.
You can Deduct Golf with “Associated Entertainment” Deductions
Associated Entertainment for Small Businesses
What is associated entertainment? Botkin says that Congress and the IRS generally want businesses to discuss business-related matters in an environment or surrounding that’s conducive to formal business discussions which means a theater, golf course, or night club isn’t exactly conducive surroundings. But he notes that the internal revenue code allows small businesses to the deduct what’s called associated entertainment (Pg. 11).
This is one of the most interesting parts of the book because I know that I would like the opportunity to write off these kinds of things. Botkin got me asking:
“What is associated entertainment?”
Associated entertainment deduction is fun that either precedes or follows a substantial, authentic, and bona fide discussion about business on the same day as this entertainment. (Botkin)
So Botkin’s saying that this “associated entertainment” or “Goodwill entertainment”, is fun that either precedes or follows a substantial, authentic, and bona fide discussion about business on the same day as this entertainment.
The example he gives is if somebody was having a business lunch with a prospect, and then decides to go play golf after that lunch, the business owner would be able to deduct the golfing costs at 50%.
That sounds just too simple, and the author then adds a little tip to this example: it’s critically important to keep great notes connecting the associated entertainment with the original business discussion. You want to cover the who, what, when, why, and where and take detailed notes about the price differences between all of the expenses.
He also notes that there needed to have been a bona fide business discussion during a dinner at a proper business setting that’s followed by entertainment that would be associated with that dinner discussion. He says that night clubs, golf courses, theaters, and sporting events are some typical associated entertainment or Goodwill entertainment. (pg.12)
How to Deduct Season Tickets
So you love the Minnesota Twins and would like to find a way to deduct Twins tickets against your small business. Sandy Botkin actually talks about how you can deduct season tickets as associated entertainment in the next section.
One form of associated entertainment would be sporting events, and you can use season tickets as goodwill entertainment when they are considered by event. Remember, all of these expenses are only 50% deductible.
The example that Botkin gives is that if you bought 10 games worth of the season tickets, and eight of them will be used before or after you talk business with a prospect, then 80% of the cost of those season tickets would then be 50% deductible.
If there’s a certain team that you really like, and you own a small business, then you should start doing business meetings with bona fide prospects or business relationships in proximity to the games you’d hoped to attend.
Section 1.274-2( d)( 1) of the ITR.
- Section 1.274-2( d)( 1)( ii) of the ITR.
- Section 1.274-2( d)( 3)( i) of the ITR.
- Revenue Ruling 63-144, 1963-2 C.B. 129, Q& A 50. 18. Section 1.274( l)( 1)( A) of the ITR and Section 274( n)( 1) of the IRC.
- Section 274( l)( 1)( B) of the IRC.
- Section 1.274-2( d)( 4) of the ITR; Revenue Ruling 2000-45, IRB 2000-41; 46 RIA Weekly Alert, No. 39 (9/ 21/ 2000).
- Ibid. 22. Revenue Ruling 63-144, Q& A 31, 1963-2 C.B. 129; Sutter v. Commissioner,
21 TC 170 (1953), acq. 1954-1 C.B. 6. 23. Section 1.274-2( b) (i) and (ii) of the
Botkin, Sandy. Lower Your Taxes – BIG TIME! 2017-2018 Edition: Wealth Building, Tax Reduction Secrets from an IRS Insider (Lower Your Taxes Big Time) (pp. 19-20). McGraw-Hill Education. Kindle Edition.