J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

20.19 Goodwill Entertainment

Goodwill entertaining may qualify as deductible entertainment. Dining and entertainment costs may be deductible if a substantial and bona fide business discussion directly preceded or followed the dining or entertainment.

An officially scheduled meeting at a convention is generally considered a bona fide business discussion.

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Caution

Hunting or Fishing Trips

The IRS presumes that entertainment during a hunting or fishing trip or on a yacht is not conducive to business discussion or activity. You must prove otherwise.

In one case, a printing-press-parts manufacturer convinced a federal appeals court (Eighth Circuit) that there was a business purpose for the annual fishing trips it held for factory workers and sales personnel following its sales conference. Specific company business was discussed during the trips. Salespersons gave feedback to factory employees concerning manufacturing problems that increased the need for repairs, parts distribution issues were discussed, and plans made to counter competitors.

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EXAMPLES

1. During the day, you negotiate with a group of business associates. In the evening, you entertain the group and their spouses at a theater and nightclub. The cost of the entertainment is deductible, even though arranged to promote goodwill.

2. In the evening after a business meeting ...