Article reprinted with the permission of W. Murray Bradford, CPA
QUESTION: I sell property and casualty insurance in Florida. I also like to scuba dive. I would like your opinion on whether or not the following is deductible. I spent five hours with a prospect. First we went on a dive, then we spent two hours at dinner, where I asked the prospect to buy his car insurance and homeowners insurance from me. May I deduct the cost of the dive and the dinner? (S.D., Vero Beach, FL)
ANSWER : Yes. Both are deductible.
The dinner is deductible as directly related entertainment—this is a technical term in tax law for business entertainment that qualifies for the entertainment deduction because you had the business discussion in a business setting (the restaurant). The scuba diving is deductible as associated entertainment—entertainment that is associated with a business discussion qualifies as deductible entertainment.
You did not mention who paid for what. If you paid for both yourself and your prospect, you deduct for both. If you paid only for yourself, you deduct that amount. Either way, you qualify for the deduction.
REPLY: That’s great!
QUESTION: If our spouses were to scuba dive, how would that change the deductions? (S.D., Vero Beach, FL)
ANSWER : You could deduct the cost of having the spouses scuba dive under the closely connected rule that allows deductions for the costs of entertaining spouses even when the spouses are not involved in the business discussions.
W. Murray Bradford, CPA
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