Did you read last week's "From Where I Sit" newsletter? If not, go check it out at: Football is Here! Deduct Your Texans Tailgate Party!. We talked about how to deduct your football tailgate party using either the 100% entertainment deduction and/or the 50% entertainment deduction. This week, we'd like to present some strategies on how you may be able to deduct the tickets your purchase for either college football or the NFL.
How to Deduct Your Football Tickets
Football entertainment expenses can only be deducted if it is determined that they are ordinary and necessary. To be considered ordinary and necessary it must meet the requirements for one of the follow two tests:
Directly Related: The purpose of the entertainment must have some type of business purpose. This event could have been to gain income or in some way benefit the business in the future.
Associated: The entertainment this is being deducted was associated with the active conduct of business. This means that the entertainment expense could be directly before or after a business discussion
Who Can You Take?
In order to qualify the football tickets as a deduction you must have at least one person present that is there with the intent to benefit your business in some way. For example, employees, clients, partners, vendors, or prospects.
50% Entertainment Deduction
If you take a client, vendor, or other business associate to the game, you will be limited to the 50% deduction. You would need to perform some type of business activity before or directly following the game. Any meals would also qualify for the 50% deduction..
100% Entertainment Deduction
As mentioned in previous articles, You can deduct 100% of the costs associated with entertaining your employees and their spouses as long as the event is "primarily" for the benefit of employees other than a "tainted group." The tainted group consists of any employee paid more than $110k a year, a 10% owner or any family member of a 10% owner.
You can buy tickets for all in your company and their spouses and head to out the game as a group - any food or drinks bought for employees will also be 100% deductible. In this situation, you would not have to perform any business-related activities - your reasoning could be simply to boost company morale.
Buying Tickets from a Broker
If you buy tickets from a broker, you have to use the face value of the ticket as your basis when determining your deduction. If you bought two game tickets from a broker for $300 and the face value is $100 on each ticket then your basis is $200. So, with the 50% entertainment deduction, you can only deduct $100 - even though you paid $300 for the tickets.
Gift or Entertainment Expense?
If you give the tickets to a business associate (employee, client, etc) and do not attend the event yourself, you can choose whether to declare the tickets a gift, subject to the $25 limitation, or entertainment expense. You can make the decision on what will give you a better deduction. For example, you gave a client two $100 tickets to the football game for their personal use. If you treat those tickets as an entertainment expense, you may deduct $100. Treating those tickets as a gift would limit your deduction to $25.
Charitable Contribution Deduction for Good Seats?
Do you have a favorite college football team and want access to the good seats? If so, I have a little known tax secret for you... If you donate to your favorite team's university, you can deduct 80% of that donation as charitable contribution - and in turn most colleges give you first dibs to buy season tickets. FYI - Some colleges have minimum donation amounts to qualify to buy season tickets while others have waiting lists for season tickets.
The tickets would not be deductible unless used in a way outlined above.
Don't Forget to Document Everything!
You absolutely must document all of your expenses associated with football games as an entertainment expense, just as you must document any other entertainment. The IRS loves to audit entertainment expenses so ALWAYS remember to write down the "5 W's".... who, what, when, where & why.