Question

David purchases a yacht solely for the purpose of entertaining real estate clients. He wishes to position himself as a high-end real estate salesperson specializing in very expensive residences and uses the yacht only for business entertainment. During 2019, his expenses for maintaining and operating the yacht, including depreciation, were $28,000. In addition, he incurred $9,000 of catering expenses for meals he provided to business clients on the yacht. What is David's tax deduction in 2019?

Answer 1

As per Tax Cuts and Jobs Act, 2017 the cost of entertaining clients is not tax deductible. It can be only claimed as a deduction when meeting has a direct business purpose. The catering expenses for meals provided, along with entertainment to business clients are tax deductible to the extent of 50% only if they are are listed seperately.

According to the rules mentioned above, the expenses for maintaing and operating the yatch, including depreciation, are not tax deductible.

However the catering expenses for meals provided to business clients to the extent of $9000, are listed seperately. Hence tax deduction to the extent of 50% shall be provided for the expense.

David's tax deduction in 2019 ($9000*50%) is $4500.