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Football is Here! Deduct Your Texans Tailgate Party!

deduct football fisher cpa cplIt's finally here - FOOTBALL Season! With the season of football comes house parties, tailgate parties, and the occasional lazy Sunday football marathon. What if you were able to deduct some of the costs of your football enjoyment? Especially your tailgate party?! Believe it or not, there are a few tax strategies that would allow you to do just that.

Deduct 100% of Your Texans Tailgate Party....
Just as we wrote about in our article, Deduct Your Employee Christmas Party, you can also deduct 100% of the costs associated with your Tailgate event! This event must be "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.

As the business owner, you also belong to the tainted group. That's not a big deal. You just need to make sure that tailgating with the employees is primarily (more than 50%) for the benefit of the employees.

You can also deduct the cost of entertaining your employee's spouses the same as you deduct the cost of entertaining the employees. Thus, a party for employees and their spouses is 100 percent deductible.

Also, your tailgate party can qualify for the 100% entertainment deduction if it is open to the general public. For example, if you let the general public know (through your company's Facebook, Twitter, blog, press release, etc) that your company will be out tailgating and anyone is welcome to join - you can deduct 100% of the costs of the event.

That being said - the Texans have some tailgating rules you must follow while you're out there. For example, NRG Stadium and the Houston Texans do not allow you to display advertising, banners or signs, or distribute promotional items on property. So, you'll have to keep your business advertising low-key.

Deduct 50% of Your Texans Tailgate Party...
If your tailgate party is not for the benefit of employees or open to the general public and you invite clients, vendors, or other business associates, it will not qualify for the 100% entertainment deduction. While the costs associated with entertaining your employees will still be 100% deductible, the costs associated with entertaining clients will only qualify for the 50% entertainment deduction - as long you your can prove the tailgate party directly relates to the active conduct of your business or associated with a directly related discussion that preceded or followed the tailgate event.

So, How Do I Relate My Tailgate Party to My Business?
This is where you can get creative, especially since the Texans don't want you to have promotional items on the property. You can let guests know you are directly furthering your business by having this party or give a speech about the products or services you provide before taking the burgers off the grill.

How Do I Allocate the Costs of the Party?
You should have two entertainment deductions set up in your chart of accounts - one for 100% Entertainment and another for 50% Entertainment. So, if your tailgate party has 30 guests and 15 of the party-goers are employees and their spouses, half the cost of the party will be 100% deductible. If the other 15 guests are clients, vendors or business associates, 50% of the remaining costs will be 50% deductible.

Don't Forget to Document Everything!
You absolutely must document all of your expenses associated with the party, just as you must document any other entertainment. The IRS loves to audit entertainment expenses so ALWAYS remember to write down the "who, what, when, where & why's".

Use the examples below to help answer the "5 W's".

  1. WHO - Who was in attendance and each person's business relationship. (ex: Client, Potential Client, Employee, etc).
  2. WHAT- What is the business purpose of your tailgate party? (ex: Open to the public Meet & Greet, Client Meeting/Entertainment, Employee Entertainment)
  3. WHEN - Date & Time
  4. WHERE - Location of Event
  5. WHY - Why it is necessary to host the event in the tailgate atmosphere. (ex: Potential clients in targeted industries frequent these events, Clients and/or potential clients enjoy these events, Reward to Employees)

While this entertainment tax deduction strategy could be very risky if you do not cross all your "T"s and dot all "I"s, it is not completely impossible. If you have any questions about planning and setting up a tax deductible tailgate party or would simply like to invite us to yours, please give us a call!

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