If you entertain your client, customer, or employee, the cost of your expenses is deductible, subject to a 50% limit. In order to be deductible as a meal and entertainment expense, an expense must be an ordinary and necessary business expense, and be able to qualify under a directly related test or an associated test.
Specific Details
The taxpayer reduced their taxable income by $5,000 by deducting the cost of their business entertainment expenses. Since the taxpayers income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).
Potential Savings
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by deducting the cost of your business entertainment expenses.