A wined and dined client is a loyal one, and a prospective customer wooed with food is likely to express his gratitude by placing an order.  Because of its proven profit potential, business entertainment has long been tax deductible. 

You don’t have to conduct business with a waitress hovering in the background, however.  The cost of entertaining in your home is equally deductible, but a few conditions apply:

You must have a business purpose for getting together.  But if your clients are also friends, you don’t have to treat them like strangers.  You can engage in small talk and exchange pleasantries as well as discuss business.

Food and drink must be served in an atmosphere conducive to a business discussion.  There should be no distractions. A party would hardly qualify.  Neither would a meeting in the family room with the television on and the children whizzing paper airplanes.

Limit the gathering to business guests.  This is not a hard-and-fast rule, but entertaining a group that includes  non business guests raises the presumption that the primary character of the entertainment was not business, but a ripping good time.

Before you hunt for the punch bowl, there is one limitation you should be aware of.  In many tax jurisdictions only 50% of business meals and entertainment is usually deductible.  So you may want to skip the  champagne and caviar.

Because a home is an informal setting, the Tax authorities tend to be sceptical about the business nature of home entertaining.  To back up your reasons for the deductions, be sure to buy food and drink you intend to serve to business guests separately from other groceries. 

Keep the supermarket receipt, and write the following five required items of information on it:

the date;

the place;

the amount spent;

the name of the person(s) entertained (use last names);

the business purpose of the entertainment or any business benefit gained.

You may also want to have business guests sign a guest book.

If you set aside a certain area of your home exclusively for entertaining clients or prospective clients, you may include that floor space in your home office calculation.

Note: Taxation legislation differs between countries and each country may change their rules at any time. The information provided in these newsletters is accurate at time of publication. You should however seek specific information from your Tax Advisor or Taxation Department as it relates to your own situation each year that you are required to provide Income and Expense Statements.

Other topics in this series are as follows:

Number 1, Record Keeping,

Number 2, General Expenses,

Number 3, Purchase of Goods for Resale,

Number 4, Deductions for use of Home,

Number 6, Motor Vehicle Expenses,

Number 7, Depreciation Costs,

Number 8, Business Meals,

Number 9, Salary Payments to Children,

Number 10, Travel Expenses,

Number 11, Demonstrators Samples & Promotional Tools,

Number 12, Gifts,

Number 13, Here Comes the Tax Man,

Number 14, Capital Items,

John Ritchie, A.I.B., A.I.C.B, F.I.C.B, email:brlynt@gmail.com

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