Tax Reform Allows 100 Percent Deductions for Presentation Expenses
Tax reform did much damage to tax deductions for business entertainment and meal expenses. But meals served at business presentations survived the entertainment and prospect and client meal bloodletting. And not only did presentation expenses survive as deductions, but they also continue as 100 percent business expense deductions.
A good number of small businesses are going to rejoice
over this. Let’s look at some examples:
Example 1. Sam, a financial advisor, mails
prospects an invitation to an educational dinner
seminar. He does a one-hour presentation and then
serves dinner to the participants. He spends $3,000
on the dinner and, as the tax code stands now after
the new tax reform, deducts 100 percent of that
$3,000 cost as a presentation expense.
Example 2. Linda, a real estate sales professional,
holds an open house and serves wine and hors
d’oeuvres. Under current tax law as before the new
tax reform, Linda’s expenses for the wine and hors
d’oeuvres are 100 percent deductible as
Example 3. George markets and sells real property
near Phoenix to residents of Arizona. He acts as a
broker for the owners of the real property and
receives commissions based on sales. To find his
prospects, George uses telemarketing and holds
drawings for free trips to Hawaii at trade shows,
conventions, and the Arizona State Fair. George
does not engage in any other form of advertising.
He provides the dinners free of charge regardless of
whether attendees purchase any property. The
attendees must stay for the presentation. George
does not eat free; nor do any of his employees.
They are busy schmoozing and selling. The IRS
ruled that George’s dinners are not entertainment
but 100 percent deductible presentation expenses.
Example 4. In Matlock, the court ruled that
Matlock could deduct 100 percent of the
refreshments he served to prospects during sales
seminars he conducted in his home, because the
refreshments were a cost of his sales seminar and
not entertainment. Matlock sold solar heating and
cooling systems. He installed a unit in his home
and used the sales seminars in his home to
demonstrate the system.
Example 5. IRS regulations state that the cost of a
fashion show is not entertainment when put on by a
manufacturer of dresses for its prospective store
buyers. On the other hand, the IRS notes that an
appliance distributor who conducts a fashion show
for the spouses of his or her retailers incurs
Example 6. The IRS says that although attending a
theatrical performance is generally entertainment,
this is not true for a professional theater critic who
attends in his or her professional capacity.
The key to this is the public. IRC Section 274(e)(7) exempts the presentation expense from classification as entertainment when it is an expense for goods, services, and/or facilities that you make available to the general public. Robert Matlock paid a telemarketing service to locate prospective customers. George found prospects at trade shows, conventions, and the state fair.
The first step to the 100 percent presentation expense deduction is that you are making your presentation to the general public.
If your audience is made up of relatives and close friends, they are not the public, but if your audience is made up of prospects with whom you have no personal relationship, they are obviously the public.
Want to know more? Have some tax questions of your own? Get in touch with us and we’ll guide you thru the tax and accounting process.