Long gone are the days when taxpayers could write off what the tax law calls a 'quiet business meal' with a customer at which no business is discussed. However, by mixing business with pleasure, taxpayers can actually make their business meals do double duty: A business discussion during a meal can not only make the meal deductible, but can allow the taxpayer to write off other business entertainment.
The key here is the tax rule that an expense for any entertainment associated with business is deductible as long as it either precedes or follows a substantial and bona fide business discussion.
Typical example: Easter Bunny, a salesman, wants to entertain Santa Claus, a buyer. On Monday, Bunny takes Claus out to lunch. They play a leisurely round of golf in the afternoon. No business is discussed that day. On the following Friday, Bunny and Claus meet again for lunch and discuss Bunny's new line of products.
Result--Bunny can deduct the Friday lunch--and that's all. He gets no write off for the Monday lunch or for the greens fees he pays for the afternoon of golf. Reason: There was no business discussion before, during, or after that lunch. And the same applies to the round of golf--no discussion, no deduction.
WHAT TO DO: If a taxpayer has a mix of deductible and nondeductible meals, he or she should schedule other entertainment before or after the deductible meals. That way, the business discussion during the deductible meals will also count as discussion for purposes of writing off the entertainment.
For example, let's say Bunny postpones the golf game. Instead of taking Claus to the links on Monday, they go on Friday after their business lunch.
New result--The golf match now follows the business discussion during the Friday lunch. So the lunch--and the cost of the golf outing--are deductible.