Question

Natalie (a CPA), Mathew (an attorney), Jacob (a banker), and Avery (an insurance agent) all live and work in the same community. They have been friends since college. Every Friday, they have lunch together and make it a point to discuss some business matters. They take turns paying 35Jacobs, 148 T.C. No. 4 (6/26/17). for the group’s lunches, and each deducts the amount he or she paid for the lunch as an entertainment expense. Presuming that one of the four is audited, do you anticipate any difficulty with the IRS? Explain

Answer 1

Meals and entertainment expenses are a legitimate business expenses. But because these expenses can be misused and mixed up with personal expenses, the IRS keep close eye on them in audit.

There are some provisions regarding claiming the entertainment expenses-

A. Business lunches are deductible at 50%.

B. Taking a client or customer to an experience is no longer deductible

Hence, In the given situation only 50% of the total amount can be claimed as an entertainment expense.