Deduct event ticket prices, but watch your step

Take one of your best clients to the ball-game and write it off your taxes. Easy, right? Well, maybe. It's possible to do this, but there are numerous rules and limitations that apply.

First, to deduct entertainment expenses, the taxpayer must substantiate the time, place, business purpose and relationship of the people being entertained by the taxpayer. Failure to substantiate your expenses will result in disallowance of your deduction.

This should be simple, but even the definition of entertainment is not directly addressed by the Internal Revenue Code or regulations.

However, entertainment is generally considered to constitute any amusement or recreation, including entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events and on hunting and fishing trips, vacations or similar trips.

The amount deductible for a ticket to an entertainment event is limited to the face value of the ticket. Thus, amounts paid in excess of face value to ticket agencies, ticket brokers or scalpers are not deductible. Further, the allowable portion of the ticket cost is further reduced by the 50 percent limitation on meal and entertainment expenses. So, for tickets, you really only get to deduct half of the face value.

Tickets to athletic events can be treated in one of two ways, under specific circumstances and with specific rules: as a business gift or as an entertainment expense.

As a business gift, tickets to athletic events are subject to the $25-per-year limitation for any one recipient that applies to all business gifts. If the tickets qualify as a business gift, they are 100 percent deductible.

If the taxpayer or her employer accompanies the recipient to the event, however, the tickets must be treated as an entertainment expense and are subject to the 50 percent limitation.

Sky boxes, or luxury suites, also have their own set of limitations. The allowable deduction for sky-box rental is limited to the face value of non-luxury box-seat tickets held for sale to the general public, multiplied by the number of seats in the sky box.

Taxpayers are allowed a deduction of 50 percent of the expenses for food and drink served in a sky box, if they are separately stated from the price of the sky box itself. Additionally, these amounts must be reasonable. You cannot circumvent the sky-box rental limitations by inflating the amounts charged for food and beverages.

Finally, remember that if you're planning on entertaining clients or business associates, most of your expenses will be subject to a 50 percent limitation. And always be sure to document who, what, when, where and why.

(Joe Greene, CPA, is a shareholder with Roberts, McKenzie, Mangan & Cummings PC, a Springfield public accounting firm.)