Common situation: You gave a client front-row tickets to the biggest event in town. Business gift or entertainment? It could go other either way.
Strategy: Claim the cost as entertainment on your 2017 return. It’s likely to produce a bigger deduction.
But this is the last year you have this option. Beginning in 2018, the Tax Cuts and Jobs Act (TCJA) permanently repeals deductions for business entertainment expenses.
The tax deduction foris limited to a paltry $25 per recipient. This limit hasn’t been raised in decades. On the other hand, business entertainment deductions are limited to 50% of the cost. Unlike business gifts, there’s no dollar limit. Notably, the cost of tickets qualifies as entertainment if the event immediately preceded or followed a substantial business meeting.
Example: In 2017, you gave a top client and spouse two front-row tickets for a concert after a meeting to sign a new contract. The tickets are valued at a total of $1,000. Therefore, you can deduct $500 as business entertainment.
Conversely, if you had treated the client to other gifts valued at $1,000 (such as plane tickets to a resort destination), your deduction would be limited to just $50.
Tip: If you attend the event with the client, that’s entertainment rather than a gift.