You entertain clients and business prospects to build relationships and gain new business so lets talk about meals and entertainment tax write offs for real estate investors. In some cases these meals/entertainment can be tax deductible. The expense must meet either the directly related test or the associated test as defined by the IRS.
Directly Related – You must show that “Entertainment took place in a clear business setting, or main purpose of entertainment was the active conduct of business, and you did engage in business with the person during the entertainment period, and you had more than a general expectation of getting income or some other specific business benefit.”
Associated – If your meal or entertainment is “associated with the active conduct of your trade or business, and takes place directly before or after a substantial business discussion” it would be considered associated.
You can only deduct 50% of your meal/entertainment expense. Some included meal or entertainment expenses include taxes, tips, cover charges and parking.
In general you cannot deduct the cost of a meal/entertainment for your spouse or for the spouse of a customer. However, if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment those expenses can be deducted.
For example let’s say you entertain a client or business prospect. The clients spouse joins you because it is impractical to entertain the client without the spouse. You can deduct the cost of entertaining the client’s spouse. Also, if your spouse joins the party because the client’s spouse is present, the cost for your spouse is also deductible.
Meal or entertainment expenses for individuals that are considered social guests and not business prospects are non-deductible expenses.
All expenses over $75 must be documented. You must record who attended, their relationship to you, the purpose, type of business discussed, time, date, place, cost and all receipts.
Being a landlord can have many tax advantages. Make sure to take advantage of all of them. After all, you got into this to make money, right?
This is not intended as legal advice but rather as an educational overview. Please consult a tax attorney or your CPA for further clarification.