Question

Holly took a prospective client to dinner, and after agreeing to a business deal, they went to the theater. Holly paid $290 for the meal and separately paid $250 for the theater tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

Answer 1

Answer:

Holly can deduct $145 as business expense.

Explanation:

As per IRS, meals expenses are 50% deductible provided they are incurred for business purpose. Earlier entertainment expenses were also 50% deductible, but as of 2018, they are no more deductible for tax purpose.

Here, Holly closed the deal at dinner. So, 50% of meal expenses are deductible as business expense for tax purpose. So, $145 (50% of 290) can be claimed as deduction by Holly while filing her income tax returns.

Prior to 2018, entertainment expenses were 50% deductible if incurred for business purpose. In this case since the deal was closed at dinner, price of theatre tickets are not considered business expense. Moreover, even if they were qualified business expense, they are not deductible since 2018.