Sullivan & Company - Certified Public Accountants 4709 Montgomery Lane #201 - Bethesda, MD, 20814 Phone: 301-657-8080





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This Month's Feature Articles



Traditional IRAs vs. Roth IRAs

- Tax Tips for Those Affected By Natural Disasters

- Business Entertainment Expenses

- Preparing an Effective Business Plan

- Identity Theft: What to Watch out for and What to do


Tax Tips


- Who Can Represent You Before the IRS?

- Ten Key Tax Facts about Home Sales

- Virtual Currency Treated as Property for Tax Purposes

- Understanding the Gift Tax

- Keep Track of Miscellaneous Deductions







Business Entertainment Expenses


As a business owner, you are entitled to deduct certain expenses on your tax return such as those relating to entertaining clients.

Entertainment is considered any activity that provides entertainment, amusement, or recreation.


It may also include meeting the personal, living, or family needs of individuals including providing meals, a hotel suite, or a car to customers or their families.

A meal that you provide to a customer or client may also be considered a form of entertainment. The meal may be part of other entertainment or stand alone. Meal expenses are defined as the cost of food, beverages, taxes, and tips for the meal.


To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided, and you cannot deduct a meal as both a travel and entertainment expense.


Entertainment expenses are generally deductible at 50 percent. Entertainment costs, taxes, tips, cover charges, room rentals, maids, and waiters are all subject to the 50 percent limit on entertainment deductions.

Entertainment expenses are also subject to certain limits and restrictions such as whether they qualify as "ordinary and necessary" and not "lavish or extravagant." They must also be directly related to or associated with, your business and you must keep detailed records substantiating your expenses (more on this below). Furthermore, the person you entertained must be a business associate; that is, someone who could reasonably be expected to be a customer or conduct business with you such as an employee, client, or professional advisor.

If it is customary to entertain a business associate with his or her spouse and your spouse also attends, entertainment expenses for both spouses are deductible, thanks to something called the "closely connected rule." For more information about this topic, please contact the office.


If you are an employee who is reimbursed in full by your employer different tax rules apply (e.g. you are not subject to the deduction limits).




Your Home

Entertainment expenses are only deductible when they take place in a location conducive to business. A nightclub or theater is not considered a place conducive to business, but your home is. For example, if you hold a small (less than 12 people) party for clients and business associates at your home during the summer it may be deductible as long as you discussed business with your guests. The amount of time that business was discussed is not significant.

Year-end parties for employees, as well as sales seminars and presentations held at your home, are generally 100 percent deductible provided costs for food and refreshments are reasonable and not lavish.

Entertainment Facilities

Out-of-pocket expenses for food and beverages, catering, gas, and fishing bait provided at facilities you own or are a member of such as a yacht, hunting lodge, fishing camp, swimming pool, and tennis court are deductible subject to entertainment expense limitation of 50 percent. However, you may not deduct expenses related to the depreciation and upkeep of the facility or for rent and utilities.

Dues paid to country clubs, social, or golf and athletic clubs are not deductible.




If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally can't deduct more than the price of a nonluxury box seat ticket. You can, however, count each game as one event. Deduction for those seats is then subject to the 50 percent entertainment expense limit. If the cost of food and beverages are on a separate receipt, you are allowed to deduct those expenses (as long as they are reasonable) in addition to the amounts allowable for the skybox, subject of course, to the requirements and limits that apply.


Expenses are directly related if you can show that there was more than a general expectation of gaining some business benefit, rather than simply goodwill. In addition, you must show that you conducted business during the entertainment and that the active conduct of business was your main purpose.

Even if you cannot show that the entertainment was "directly related" you may still be able to deduct the expenses as long as you can prove the entertainment was "associated with" your business. To meet this test, you must have had a clear business purpose when you took on the expense, and the entertainment must directly precede or come after a substantial business discussion.



Tax law requires you to keep records that will prove the business purpose and amounts of your business entertainment as well as other business expenses. The most frequent reason that the IRS disallows entertainment expenses is the failure to show the place and business purpose of an item. Therefore it is paramount that you keep excellent records.

To substantiate entertainment expenses you must show the following:

- The amount of each separate expense.
- The date, time, place, and type of entertainment (e.g. dinner).
- The business purpose and nature of any business discussion that took place.
- The business relationship and the name, title, and occupation of the person or people you entertained.


Tax law is complicated, and this article only touches on a few of the deductions for entertainment expenses you might be entitled to. If you have any questions about entertainment expenses or need assistance setting up a recordkeeping system to document your business-related activities, don't hesitate to call.


If you have any questions about business entertainment expenses in your company, please call us at 301-657-8080.


DID YOU KNOW that Sullivan & Company manages Pension Funds, Retirement Plans & Taxable Accounts through Archer Investment Corporation & Fidelity Investments for our clients.
Fidelity is the custodian for more retirement plans than any other custodian in the United States.

Let Sullivan & Company Analyze Your Asset Allocation & Risk Tolerance for FREE!
Call 301-657-8080 today!



 Wealth Management at Sullivan & Co. CPAs

Paul Sullivan leads our Wealth Management Group and is here to help you navigate your financial future. As Investment Advisor Representatives, he and our Wealth Management team are able to provide an independent opinion on the investments you already own or are considering buying.


We can structure a portfolio based on your risk tolerance or we can help you decide how to invest in your company 401(k) plan.


We work with each client to identify their concerns and to provide solutions according to their situation.

Paul is also experienced in company retirement plans. If you own a business that does not have a plan; we can discuss your options and set up a plan that fits your company.


If your business already has a plan; we offer a free evaluation of the plan to ensure that it is up to date and working well for you and your employees.

Our goal is to provide personal, unbiased and independent advice to help you make well-informed decisions about your financial life and investments.

Contact Chris Bailey, CPA, MBA, IAR or Ben Perron, CPA, IAR or Paul Sullivan, CPA, IAR to set up a free initial consultation (301) 657-8080.

And as always if you have any questions about accounting or investments and how they effect you or your business, please give us a call. We can help guide you in the right direction.



Remember you can call our offices if you have any questions about these or any other accounting, tax, financial planning or insurance related issues, at 301-657-8080. 


Regards, Paul Sullivan, CPA, IAR

President, Sullivan & Company





Sullivan & Company, CPAs | 4709 Montgomery Lane | Bethesda, MD 20814 | email:
Direct: 240-316-3531 | Main no.: 301-657-8080 Ext 102 | Fax: 301-657-9055