Can You Deduct Entertainment Expenses?

What counts as an entertainment expense?

Here’s how the IRS defines an entertainment expense:

 “Any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at bars, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family.”

Keep in mind that entertainment expenses differ from business meals and travel expenses. We’ll dig into the distinctions between the three a little further on.

{upsell_block}

Can you write off entertainment expenses?

Put simply: No, you can not write off entertainment expenses. 

How entertainment expenses have changed 

If the above answer comes as a surprise to you, it’s probably because entertainment expenses used to be deductible. Prior to 2017, businesses could deduct up to 50% of their entertainment expenses, as long as the expense was incurred in conjunction with a business discussion. 

For example, if a freelance graphic designer took a potential client to a gallery to show them where they get inspiration as a strategy for closing a business deal, they could write off 50% of the cost of the gallery tickets.

Then in 2018, the Tax Cuts and Jobs Act came into effect, overhauling both individual and business taxes and changing the rules around entertainment expenses. Under the act’s new rules, you can no longer write off entertainment expenses — so the graphic designer’s gallery tickets would no longer be tax-deductible today.

Entertainment expenses for your employees

When we talk about entertainment expenses in this article, we’re referring to client entertainment expenses — like taking a potential client to a soccer game. Those aren’t deductible.

However, if your business employs workers, you can deduct certain employee “recreation” expenses. Per the tax code, you can deduct “expenses for recreational, social, or similar activities primarily for the benefit of employees." 

So if you throw a company-wide holiday party or plan a team-building activity for your employees, you might be able to write off 100% of the associated costs.

{write_off_block}

Entertainment vs. business meal expenses

While entertainment expenses can’t be written off, business meals are 50% deductible as long as the purpose of the meal is to drum up or talk about business. This includes:

• Taking a current client out for a meal to talk about business
• Taking a prospective client out for a meal to talk about business
• Going for a meal with a coworker to talk about business
• Going for a networking meal with a professional in your industry to talk about business

What if my business meal and entertainment expenses overlap?

As long as the cost of the meal is separate from entertainment costs, you can still write the meal off.

For example, let’s say a construction contractor takes a prospective client to a home and garden show in the hopes of solidifying a business deal. While they’re at the conference, they buy their client lunch and sit to talk shop.

As long as they pay for lunch separately from the cost of the conference tickets, they can still write off 50% of the lunch.

On the other hand, if a freelance costume designer takes a client to the theater and their tickets include a glass of champagne, the freelancer can’t write off the cost of their drinks. Even if the theater trip leads to business, the drinks can’t be deducted because their cost is bundled in with the price of the theater tickets.

Entertainment vs. business trip expenses

When you go on work trips, expenses like travel costs, accommodations, and meals can typically be written off on your taxes. (Keeper even has a handy guide that can help you identify and claim travel expenses.)

However, entertainment expenses still aren’t deductible, even if they’re incurred while you’re on a business trip. 

For example, let’s say you’re on a work trip to attend an out-of-town conference and you…

• Go to a basketball game with fellow attendees to network after the conference. The cost of the game tickets is considered an entertainment expense and can’t be written off, even if it leads to work opportunities
• Go for dinner with fellow attendees to debrief what you learned during the day’s presentations. The cost of your dinner qualifies as a business meal, so you can write it off

These types of travel expenses tend to stack up quickly when you’re on a work trip. Instead of stuffing your carry-on with receipts or coming home to pore over bank statements in search of qualifying expenses, you can let the Keeper app make tracking write-offs a breeze. You can even file with Keeper come tax time.

While you may never think of filing your taxes as “entertainment,” you’re sure to enjoy the tax savings Keeper can deliver.

{email_capture}

FAQ

What entertainment expenses are deductible?

Entertainment expenses spent on clients are not deductible. Certain recreation costs spent on your employees are deductible.

Could you write off entertainment expenses in the past?

Yes, before the Tax Cuts and Jobs Act was put into effect in 2018, entertainment expenses were 50% deductible. Now, no portion of client entertainment expenses can be written off.

Are business meals and business trips still deductible?

Yes, as long as they meet the IRS requirements, you can still deduct business meal and trip costs.

However, keep in mind that the cost of your meal must be separate from the price of entertainment. For example, if you take a client to a seminar and grab dinner at the venue to talk about business, you can only write off the cost of dinner if it’s paid for separately from the price of the seminar.

Here’s a quick summary of what entertainment, business meal, and travel costs you can write off:

Can you write off subscriptions as a business expense?

Most subscriptions that are ordinary and necessary for your work can be written off. 

For example, a child psychologist with their own practice might stream Netflix in the waiting room to keep kids busy as they wait for their appointment. This counts as a write-off.

A delivery driver who watches Netflix in between pick-ups, on the other hand, wouldn’t be able to deduct the cost of their subscription.

And while Netflix might feel like it falls under the umbrella of entertainment, the distinction is that it’s being used as a tool during the regular course of the psychologist’s workday. 

To stay on the safe side, if you want to talk about business with a potential or existing client, skip the fishing trip, gallery outing, or other activities that might be considered as “entertainment.” Go for a business meal, which you can write off — and if you use the Keeper app, it’ll do the deducting for you.