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Irs vita sites Publication 4492-B - Introductory Material Table of Contents Introduction Useful Items - You may want to see: Introduction This publication explains the major provisions of the Heartland Disaster Tax Relief Act of 2008 that apply only to the Midwestern disaster areas. Irs vita sites Other benefits that may apply to taxpayers in Midwestern disaster areas are covered in Publication 547, Casualties, Disasters, and Thefts. Irs vita sites Be sure to read both publications. Irs vita sites Useful Items - You may want to see: Publication 526 Charitable Contributions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 547 Casualties, Disasters, and Thefts 946 How To Depreciate Property 4492-A Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes Form (and Instructions) 4506 Request for Copy of Tax Return 4506-T Request for Transcript of Tax Return 4684 Casualties and Thefts 5884-A Credits for Affected Midwestern Disaster Area Employers 8863 Education Credits (American Opportunity, Hope, and Lifetime Learning Credits) 8914 Exemption Amount for Taxpayers Housing Midwestern Displaced Individuals 8930 Qualified Disaster Recovery Assistance Retirement Plan Distributions and Repayments Prev  Up  Next   Home   More Online Publications
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Irs vita sites 2. Irs vita sites   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. Irs vita sites 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. Irs vita sites Deduction may depend on your type of business. Irs vita sites Exception for events that benefit charitable organizations. Irs vita sites Food and beverages in skybox seats. Irs vita sites What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. Irs vita sites You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Irs vita sites The rules and definitions are summarized in Table 2-1 . Irs vita sites You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. Irs vita sites Directly-related test. Irs vita sites Associated test. Irs vita sites Both of these tests are explained later. Irs vita sites An ordinary expense is one that is common and accepted in your trade or business. Irs vita sites A necessary expense is one that is helpful and appropriate for your business. Irs vita sites An expense does not have to be required to be considered necessary. Irs vita sites The amount you can deduct for entertainment expenses may be limited. Irs vita sites Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Irs vita sites This limit is discussed later under 50% Limit. Irs vita sites Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, 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 at some future time. Irs vita sites Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Irs vita sites Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. Irs vita sites See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. Irs vita sites You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. Irs vita sites It is not necessary to devote more time to business than to entertainment. Irs vita sites However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. Irs vita sites Table 2-1. Irs vita sites When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Irs vita sites Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Irs vita sites An ordinary expense is one that is common and accepted in your trade or business. Irs vita sites A necessary expense is one that is helpful and appropriate. Irs vita sites Tests to be met Directly-related test 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. Irs vita sites   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. Irs vita sites Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Irs vita sites You cannot deduct expenses that are lavish or extravagant under the circumstances. Irs vita sites You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). Irs vita sites You do not have to show that business income or other business benefit actually resulted from each entertainment expense. Irs vita sites Clear business setting. Irs vita sites   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. Irs vita sites The following situations are examples of entertainment in a clear business setting. Irs vita sites Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. Irs vita sites Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). Irs vita sites Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. Irs vita sites An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. Irs vita sites Expenses not considered directly related. Irs vita sites   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. Irs vita sites The following are examples of situations where there are substantial distractions. Irs vita sites A meeting or discussion at a nightclub, theater, or sporting event. Irs vita sites A meeting or discussion during what is essentially a social gathering, such as a cocktail party. Irs vita sites A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. Irs vita sites Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. Irs vita sites To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). Irs vita sites Associated with trade or business. Irs vita sites   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. Irs vita sites The purpose may be to get new business or to encourage the continuation of an existing business relationship. Irs vita sites Substantial business discussion. Irs vita sites   Whether a business discussion is substantial depends on the facts of each case. Irs vita sites A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. Irs vita sites   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. Irs vita sites It is not necessary that you devote more time to business than to entertainment. Irs vita sites You do not have to discuss business during the meal or entertainment. Irs vita sites Meetings at conventions. Irs vita sites   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. Irs vita sites However, your reason for attending the convention or meeting must be to further your trade or business. Irs vita sites The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. Irs vita sites Directly before or after business discussion. Irs vita sites   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. Irs vita sites   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. Irs vita sites Among the facts to consider are the place, date, and duration of the business discussion. Irs vita sites If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. Irs vita sites Example. Irs vita sites A group of business associates comes from out of town to your place of business to hold a substantial business discussion. Irs vita sites If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. Irs vita sites The expense meets the associated test. Irs vita sites 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Irs vita sites (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Irs vita sites See Individuals subject to “hours of service” limits , later. Irs vita sites ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Irs vita sites Figure A summarizes the general rules explained in this section. Irs vita sites The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Irs vita sites Included expenses. Irs vita sites   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Irs vita sites However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Irs vita sites Figure A. Irs vita sites Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Irs vita sites See Exceptions to the 50% Limit . Irs vita sites Please click here for the text description of the image. Irs vita sites Figure A. Irs vita sites Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. Irs vita sites   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. Irs vita sites   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Irs vita sites It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. Irs vita sites It also applies to the cost of meals included in deductible educational expenses. Irs vita sites When to apply the 50% limit. Irs vita sites   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Irs vita sites You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. Irs vita sites Example 1. Irs vita sites You spend $200 for a business-related meal. Irs vita sites If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Irs vita sites Your deduction cannot be more than $45 (50% × $90). Irs vita sites Example 2. Irs vita sites You purchase two tickets to a concert and give them to a client. Irs vita sites You purchased the tickets through a ticket agent. Irs vita sites You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Irs vita sites Your deduction cannot be more than $80 (50% × $160). Irs vita sites Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Irs vita sites Figure A can help you determine if the 50% limit applies to you. Irs vita sites Expenses not subject to 50% limit. Irs vita sites   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Irs vita sites 1 - Employee's reimbursed expenses. Irs vita sites   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Irs vita sites Accountable plans are discussed in chapter 6. Irs vita sites 2 - Self-employed. Irs vita sites   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. Irs vita sites You have these expenses as an independent contractor. Irs vita sites Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. Irs vita sites You provide adequate records of these expenses to your customer or client. Irs vita sites (See chapter 5 . Irs vita sites )   In this case, your client or customer is subject to the 50% limit on the expenses. Irs vita sites Example. Irs vita sites You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. Irs vita sites You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. Irs vita sites If the client can deduct the expenses, the client is subject to the 50% limit. Irs vita sites If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. Irs vita sites 3 - Advertising expenses. Irs vita sites   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Irs vita sites For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. Irs vita sites 4 - Sale of meals or entertainment. Irs vita sites   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. Irs vita sites For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. Irs vita sites 5 - Charitable sports event. Irs vita sites   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. Irs vita sites For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. Irs vita sites Individuals subject to “hours of service” limits. Irs vita sites   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Irs vita sites The percentage is 80%. Irs vita sites   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Irs vita sites Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Irs vita sites Interstate truck operators and bus drivers who are under Department of Transportation regulations. Irs vita sites Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Irs vita sites Certain merchant mariners who are under Coast Guard regulations. Irs vita sites What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Irs vita sites Entertainment. Irs vita sites   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Irs vita sites Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Irs vita sites   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. Irs vita sites A meal as a form of entertainment. Irs vita sites   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Irs vita sites A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Irs vita sites To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Irs vita sites    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Irs vita sites    Meals sold in the normal course of your business are not considered entertainment. Irs vita sites Deduction may depend on your type of business. Irs vita sites   Your kind of business may determine if a particular activity is considered entertainment. Irs vita sites For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. Irs vita sites This is because fashion shows are typical in your business. Irs vita sites But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. Irs vita sites Separating costs. Irs vita sites   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Irs vita sites You must have a reasonable basis for making this allocation. Irs vita sites For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Irs vita sites Taking turns paying for meals or entertainment. Irs vita sites   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Irs vita sites Lavish or extravagant expenses. Irs vita sites   You cannot deduct expenses for entertainment that are lavish or extravagant. Irs vita sites An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Irs vita sites Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Irs vita sites Allocating between business and nonbusiness. Irs vita sites   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. Irs vita sites You can deduct only the business part. Irs vita sites If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. Irs vita sites Example. Irs vita sites You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. Irs vita sites Only 4/11 of the expense qualifies as a business entertainment expense. Irs vita sites You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. Irs vita sites Trade association meetings. Irs vita sites   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Irs vita sites These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Irs vita sites Entertainment tickets. Irs vita sites   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Irs vita sites For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Irs vita sites Exception for events that benefit charitable organizations. Irs vita sites   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. Irs vita sites You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. Irs vita sites The event's main purpose is to benefit a qualified charitable organization. Irs vita sites The entire net proceeds go to the charity. Irs vita sites The event uses volunteers to perform substantially all the event's work. Irs vita sites    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. Irs vita sites Example 1. Irs vita sites You purchase tickets to a golf tournament organized by the local volunteer fire company. Irs vita sites All net proceeds will be used to buy new fire equipment. Irs vita sites The volunteers will run the tournament. Irs vita sites You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. Irs vita sites Example 2. Irs vita sites You purchase tickets to a college football game through a ticket broker. Irs vita sites After having a business discussion, you take a client to the game. Irs vita sites Net proceeds from the game go to colleges that qualify as charitable organizations. Irs vita sites However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. Irs vita sites Skyboxes and other private luxury boxes. Irs vita sites   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. Irs vita sites   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. Irs vita sites For example, renting a skybox for a series of playoff games is considered renting it for more than one event. Irs vita sites All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. Irs vita sites   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. Irs vita sites Example. Irs vita sites You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. Irs vita sites The cost of regular nonluxury box seats at each event is $30 a seat. Irs vita sites You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). Irs vita sites Food and beverages in skybox seats. Irs vita sites   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. Irs vita sites The amounts separately stated for food and beverages must be reasonable. Irs vita sites You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. Irs vita sites What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Irs vita sites Club dues and membership fees. Irs vita sites   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Irs vita sites This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. Irs vita sites   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Irs vita sites You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Irs vita sites Entertainment facilities. Irs vita sites   Generally, you cannot deduct any expense for the use of an entertainment facility. Irs vita sites This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Irs vita sites   An entertainment facility is any property you own, rent, or use for entertainment. Irs vita sites Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Irs vita sites Out-of-pocket expenses. Irs vita sites   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Irs vita sites These are not expenses for the use of an entertainment facility. Irs vita sites However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. Irs vita sites Expenses for spouses. Irs vita sites   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. Irs vita sites However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. Irs vita sites Example. Irs vita sites You entertain a customer. Irs vita sites The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. Irs vita sites The customer's spouse joins you because it is impractical to entertain the customer without the spouse. Irs vita sites You can deduct the cost of entertaining the customer's spouse. Irs vita sites If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. Irs vita sites Gift or entertainment. Irs vita sites   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Irs vita sites However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. Irs vita sites   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Irs vita sites You can treat the tickets as either a gift or entertainment, whichever is to your advantage. Irs vita sites   You can change your treatment of the tickets at a later date by filing an amended return. Irs vita sites Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Irs vita sites   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Irs vita sites You cannot choose, in this case, to treat the tickets as a gift. Irs vita sites Prev  Up  Next   Home   More Online Publications