With spring training upon us, you may have lined up season tickets for the local baseball team. However, you won’t be able to deduct any expenses if you use the tickets personally.
Strategy: Arrange to take clients or prospects out to the ballpark. Besides building good will, you can write off the cost of the tickets plus other out-of-pocket expenditures.
Here are the ground rules: If you attend a game with a client or associate, you can deduct the cost only if the event qualifies as business entertainment. In other words, the game must precede or follow a substantial business discussion. You can deduct 50 percent of your qualified entertainment expenses.
However, if you don’t tag along—say you give away the tickets outright—you have a choice: The cost may be deducted as either business entertainment or a business gift. The IRS limits the deduction for to just $25 per recipient.
For season tickets, simply divide the overall price by the number of games to arrive at the cost per ticket.
Example: Let’s say you buy four season tickets for a minor league team at $20 per ticket. After you wrap up a business deal at the office, you give the tickets to four clients visiting from out of town. If you deduct the cost as business entertainment, the IRS limits your deduction to $40 (50 percent of $80). However, if you treat the tickets as business gifts, you can deduct the entire $80, or twice as much.
While you may think the cost is peanuts for just one game, the tax difference can run into hundreds or thousands of dollars by the end of the season.
Note: You can give tickets as a business gift to a client and his or her spouse. However, the IRS treats the couple as one recipient for this purpose, limiting the maximum deduction to $25. If you gave the tickets to two couples in our example above, your deduction for business gifts would be limited to $50.
Also, you can give the tickets as business gifts to your employees and deduct the cost so long as you don’t discriminate in favor of the company’s higher-ups.
When you record the expenditures, designate the cost as business entertainment or business gifts. For business entertainment, include the cost of the tickets, the date of the game, the person you entertained, the business relationship and the particulars of the business discussion. For business gifts, show the cost, the date, the recipients of the tickets, their business relationship and the expected business benefit.
Don’t forget that you can deduct other expenses at the ballpark—the hot dogs, beverages and even the Cracker Jack® snacks—as business entertainment subject to the 50 percent limit.
Tip: The IRS limits the deduction for tickets to skyboxes or luxury seating for multiple events to the cost of regular nonluxury seats. However, if you incur charges for food and beverages that you list separately, you can deduct those expenses plus the ticket costs under the general rules.
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