As an employee, can you ever deduct the cost of a sporting event or other ticket on your expense report? Surprisingly, the answer can be yes, but only if you know and abide by the rules.
The accountable plan
If your employer uses accountable plan rules for reimbursing expenses, the IRS will not only provide the ability for you to be reimbursed by your employer for your qualified expenses, it will also allow your employer to deduct the expense on their corporate tax return. To be a qualified expense, three rules must be met:
|Expenses must be related to the duties and responsibilities of the employee for their employer.|
|The expenses must be properly substantiated in a timely manner. This is usually within 30 to 60 days.|
|Any excess reimbursements to the employee must be returned to the employer.|
Applying the rules
To apply these expense deduction rules to a sporting event:
|There must be a business purpose for attending the event and|
|an employee must accompany a prospective customer, a current customer or supplier to the event.|
If you apply these rules, your employer can usually deduct 50% of the ticket cost and related expenses.
What can go wrong?
As you can imagine, the IRS looks closely at those who deduct entertainment as a qualified business expense. Here are some things to watch for:
|No customer or supplier is in attendance. Make sure you attend the event with your customer or the tickets are deemed a gift.|
|The environment does not provide for a quiet place to conduct business. Do not try to deduct concert tickets or sporting events if you do not first meet in a quiet place prior to or after the event to conduct your business affairs.|
|Over-charging the ticket price. You may only deduct the price of a ticket that is generally available to the public.|
|Bringing friends. Generally you can include a spouse in the event, but other family members or unrelated guests can raise red flags.|
As you can imagine, this area of expense deductibility is often the focus for the IRS during a review. If in doubt, please ask for help and clarification on the deductibility of this type of entertainment expense.
As always, should you have any questions or concerns regarding your situation please feel free to call.