Joe Garza of Dallas - one of the top Estate Planning attorneys in the city - addresses the frequently-asked question, "is entertainment just another bullshit tax shelter?" Garza evaluates the merits and shortcomings of this deduction, and outlines the best way to handle event deductions so that you remain in compliance with federal tax codes.

1. TheCapitalPress.com
Is Entertainment a LegitimateTax
Deduction?
TaxesandInvestment
The Capital Press
March 2014

2. TheCapitalPress.com
The general rule under many laws is that cost of entertainment is not tax deductible.
However, the same law also provides that a corporation or a person with a business can
claim as tax deduction, in full or a portion thereof, costs or expenses incurred in carrying
out a business as long as it is within the set rules.
Expenses incurred to conduct corporate events or entertainment, are in general, legit
business expenses. And all businesses, from the largest corporations to the smallest
single proprietor conduct corporate or business events either for their employees or for
existing or prospective customers for the furtherance of their goals. Some of the reasons
for holding such events could be:
• To launch a new product or
service
• A marketing/sales strategy
to attract more customers or
clients
• To honor and reward employ-
ees for loyal service and hard
work
• To improve productivity by
promoting teamwork and
boosting morale
• To celebrate a milestone in the
organization or a holiday such as Christmas
A justification for a corporate event is not limited to the above. But whatever the event
and the reason for conducting it is, it always has for its ultimate objective the realization
of a company’s short and long-term goals. In fact, most businesses consider corporate
entertainment as an investment.
Budgeting for a corporate event
An event budget is essentially a projection of all expenses that are required or related to
the delivery and actualization of the event. It could also include a revenue projection if
income is expected to be generated from the event.
A corporate event could be a small function attended only by top executives or a big gath-
ering with all the executives and employees in attendance. It could also be a full-blown
affair where all the current and prospective clients are invited. Events could be held at the
place of business or in large hotels or convention centers. It usually include meals- lunch
or dinner, and in some cases live entertainment.

3. TheCapitalPress.com
However big or small the event is, preparing an event budget is a must. This will not only
help the organizer track the actual expenses as against the budget to avoid over spend-
ing, but it will also help for a more organized and systematic execution of the plans.
However, in preparing a budget, a consultation with an accountant is advisable since an
accountant is knowledgeable on what expenses are tax deductible and which ones are
not. Let’s look at the characteristics of a workable event budget:
• Realistic: Projected expenses and revenues should be backed with realistic assump-
tions with provision for contingencies.
• Complete: Each and every item of event expenditure is provided for in the budget. All
expenditures, big or small, should be identified and provided with a budget.
• Clear and User-Friendly: The budget must be clear and easy to read and interpret.
A corporate entertainment for employees such as a Christmas party can be taxed under
the Fringe Benefit Tax (FBT). A budget for such an event should take into consideration the
steps to take so that the expenses, in full or in part, fall under the minorbenefits exemp-
tion to reduce the tax liability.