With spring training on the horizon, your client may have lined up baseball tickets. Careful planning can maximize the tax benefits for the coming season.
Strategy: Advise your client to take customers out to the ballpark. Besides building goodwill, the client may write off certain ticket costs plus other out-of-pocket expenses. The costs may qualify as business entertainment or a business gift.
Ground rules: If a taxpayer attends a game with a customer, the cost is deductible only if the event qualifies as business entertainment. Essentially, the game must precede or follow a substantial business discussion. In that case, the taxpayer can deduct 50 percent of the entertainment expenses.
However, if the taxpayer doesn't attend the game, he or she has a choice between deducting the cost as either business entertainment or a business gift. The IRS limits the deduction for business gifts to $25 per recipient.
Example: Gina Maroni buys four tickets for a minor league baseball game at $20 per ticket. After she wraps up a business deal at the office, Gina gives the tickets to four clients visiting from out of town. If she deducts the cost as business entertainment, her deduction is limited to $40 (50% of $80). However, if Gina treats the tickets as business gifts, she can deduct the entire $80, or twice as much.
While the difference may seem like "peanuts" for just one game, it can add up to hundreds or even thousands of dollars by the end of the season.
Note: Your client can give tickets as a business gift to a customer and his or her spouse. But the IRS treats the couple as one recipient, limiting the deduction to $25. Also, your client can give the tickets as business gifts to employees and deduct the cost so long as there's no discrimination in favor of the company's higher-ups.
Have the client designate the cost as business entertainment or business gifts. For business entertainment, the client should record the ticket costs, the date of the game, the person entertained, the business relationship, and the particulars of the business discussion. For business gifts, he or she must show the cost, the date, the ticket recipients, and their business relationship and the expected benefit to the business. Remember that other expenditures at the ballpark - hot dogs, beverages, and even the Cracker Jacks - may be deducted as business entertainment (subject to the 50 percent limit).
Advisory: The deduction for skybox tickets or luxury seating for multiple events is limited to the cost of regular seats. The IRS allows extra deductions for food and beverages, if separately stated.
Reprinted with permission from The Tax Strategist, February 2008. For continuing advice on this and numerous other tax strategies, go to www.TaxStrategist.net. Receive 2 FREE Bonus Reports and a 40 percent discount on The Tax Strategist when you use Promo Code WN0013.