This is the second part of a two part series.  Click here to read Taxing Situations, Part 1.


Small Businesses, including the self-employed, can take certain deductions for business related travel and entertainment expenses that are considered ordinary and necessary and not extravagant.

Entertainment expenses include expenses incurred for any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client.   To be deductible, such expenses must meet the “Directly-Related Test” or the “Associated Test”.   Even if these tests are met, you generally can only deduct 50% of your entertainment expenses.   Dues and fees for membership in clubs and organizations are, generally, not deductible.  
The Directly-Related Test requires that the entertainment took place in a clear business setting; or, the main purpose of the entertainment was to actively conduct business, you did engage in business with the person during the entertainment period, and you had more than a general expectation of getting income or some other specific business benefit.

The Associated Test requires that the entertainment be associated with your trade or business, and directly precedes or follows a substantial business discussion.

Business gifts to customers and clients may be deductible; however, there is a $25 limit.

As always, it is highly recommended that you seek the advice of an Accountant or Tax Attorney.