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2010 Form 1040nr

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2010 Form 1040nr

2010 form 1040nr 3. 2010 form 1040nr   Dispositions of Business Property Table of Contents Introduction Useful Items - You may want to see: What Is a Disposition of Property?Like-kind exchanges. 2010 form 1040nr How Do I Figure a Gain or Loss?Is My Gain or Loss Ordinary or Capital? Is My Capital Gain or Loss Short Term or Long Term? Where Do I Report Gains and Losses? Introduction If you dispose of business property, you may have a gain or loss that you report on Form 1040. 2010 form 1040nr However, in some cases you may have a gain that is not taxable or a loss that is not deductible. 2010 form 1040nr This chapter discusses whether you have a disposition, how to figure the gain or loss, and where to report the gain or loss. 2010 form 1040nr Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property Sch D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting publications and forms. 2010 form 1040nr What Is a Disposition of Property? A disposition of property includes the following transactions. 2010 form 1040nr You sell property for cash or other property. 2010 form 1040nr You exchange property for other property. 2010 form 1040nr You receive money as a tenant for the cancellation of a lease. 2010 form 1040nr You receive money for granting the exclusive use of a copyright throughout its life in a particular medium. 2010 form 1040nr You transfer property to satisfy a debt. 2010 form 1040nr You abandon property. 2010 form 1040nr Your bank or other financial institution forecloses on your mortgage or repossesses your property. 2010 form 1040nr Your property is damaged, destroyed, or stolen, and you receive property or money in payment. 2010 form 1040nr Your property is condemned, or disposed of under the threat of condemnation, and you receive property or money in payment. 2010 form 1040nr For details about damaged, destroyed, or stolen property, see Publication 547, Casualties, Disasters, and Thefts. 2010 form 1040nr For details about other dispositions, see chapter 1 in Publication 544. 2010 form 1040nr Nontaxable exchanges. 2010 form 1040nr   Certain exchanges of property are not taxable. 2010 form 1040nr This means any gain from the exchange is not recognized and you cannot deduct any loss. 2010 form 1040nr Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. 2010 form 1040nr Like-kind exchanges. 2010 form 1040nr   A like-kind exchange is the exchange of property for the same kind of property. 2010 form 1040nr It is the most common type of nontaxable exchange. 2010 form 1040nr To be a like-kind exchange, the property traded and the property received must be both of the following. 2010 form 1040nr Business or investment property. 2010 form 1040nr Like property. 2010 form 1040nr   Report the exchange of like-kind property on Form 8824, Like-Kind Exchanges. 2010 form 1040nr For more information about like-kind exchanges, see chapter 1 in Publication 544. 2010 form 1040nr Installment sales. 2010 form 1040nr   An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. 2010 form 1040nr If you finance the buyer's purchase of your property, instead of having the buyer get a loan or mortgage from a third party, you probably have an installment sale. 2010 form 1040nr   For more information about installment sales, see Publication 537, Installment Sales. 2010 form 1040nr Sale of a business. 2010 form 1040nr   The sale of a business usually is not a sale of one asset. 2010 form 1040nr Instead, all the assets of the business are sold. 2010 form 1040nr Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. 2010 form 1040nr   Both the buyer and seller involved in the sale of a business must report to the IRS the allocation of the sales price among the business assets. 2010 form 1040nr Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. 2010 form 1040nr The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. 2010 form 1040nr   For more information about the sale of a business, see chapter 2 of Publication 544. 2010 form 1040nr How Do I Figure a Gain or Loss? Table 3-1. 2010 form 1040nr How To Figure a Gain or Loss IF your. 2010 form 1040nr . 2010 form 1040nr . 2010 form 1040nr THEN you have a. 2010 form 1040nr . 2010 form 1040nr . 2010 form 1040nr Adjusted basis is more than the amount realized Loss. 2010 form 1040nr Amount realized is more than the adjusted basis Gain. 2010 form 1040nr Basis, adjusted basis, amount realized, fair market value, and amount recognized are defined next. 2010 form 1040nr You need to know these definitions to figure your gain or loss. 2010 form 1040nr Basis. 2010 form 1040nr   The cost or purchase price of property is usually its basis for figuring the gain or loss from its sale or other disposition. 2010 form 1040nr However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. 2010 form 1040nr For more information about basis, see Publication 551, Basis of Assets. 2010 form 1040nr Adjusted basis. 2010 form 1040nr   The adjusted basis of property is your original cost or other basis plus certain additions, and minus certain deductions such as depreciation and casualty losses. 2010 form 1040nr In determining gain or loss, the costs of transferring property to a new owner, such as selling expenses, are added to the adjusted basis of the property. 2010 form 1040nr Amount realized. 2010 form 1040nr   The amount you realize from a disposition is the total of all money you receive plus the fair market value of all property or services you receive. 2010 form 1040nr The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 2010 form 1040nr Fair market value. 2010 form 1040nr   Fair market value is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. 2010 form 1040nr Amount recognized. 2010 form 1040nr   Your gain or loss realized from a disposition of property is usually a recognized gain or loss for tax purposes. 2010 form 1040nr Recognized gains must be included in gross income. 2010 form 1040nr Recognized losses are deductible from gross income. 2010 form 1040nr However, a gain or loss realized from certain exchanges of property is not recognized. 2010 form 1040nr See  Nontaxable exchanges, earlier. 2010 form 1040nr Also, you cannot deduct a loss from the disposition of property held for personal use. 2010 form 1040nr Is My Gain or Loss Ordinary or Capital? You must classify your gains and losses as either ordinary or capital gains or losses. 2010 form 1040nr You must do this to figure your net capital gain or loss. 2010 form 1040nr Generally, you will have a capital gain or loss if you dispose of a capital asset. 2010 form 1040nr For the most part, everything you own and use for personal purposes or investment is a capital asset. 2010 form 1040nr Certain property you use in your business is not a capital asset. 2010 form 1040nr A gain or loss from a disposition of this property is an ordinary gain or loss. 2010 form 1040nr However, if you held the property longer than 1 year, you may be able to treat the gain or loss as a capital gain or loss. 2010 form 1040nr These gains and losses are called section 1231 gains and losses. 2010 form 1040nr For more information about ordinary and capital gains and losses, see chapters 2 and 3 in Publication 544. 2010 form 1040nr Is My Capital Gain or Loss Short Term or Long Term? If you have a capital gain or loss, you must determine whether it is long term or short term. 2010 form 1040nr Whether a gain or loss is long or short term depends on how long you own the property before you dispose of it. 2010 form 1040nr The time you own property before disposing of it is called the holding period. 2010 form 1040nr Table 3-2. 2010 form 1040nr Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. 2010 form 1040nr . 2010 form 1040nr . 2010 form 1040nr THEN you have a. 2010 form 1040nr . 2010 form 1040nr . 2010 form 1040nr 1 year or less Short-term capital gain or loss. 2010 form 1040nr More than 1 year Long-term capital gain or loss. 2010 form 1040nr For more information about short-term and long-term capital gains and losses, see chapter 4 of Publication 544. 2010 form 1040nr Where Do I Report Gains and Losses? Report gains and losses from the following dispositions on the forms indicated. 2010 form 1040nr The instructions for the forms explain how to fill them out. 2010 form 1040nr Dispositions of business property and depreciable property. 2010 form 1040nr   Use Form 4797. 2010 form 1040nr If you have taxable gain, you may also have to use Schedule D (Form 1040). 2010 form 1040nr Like-kind exchanges. 2010 form 1040nr   Use Form 8824, Like-Kind Exchanges. 2010 form 1040nr You may also have to use Form 4797 and Schedule D (Form 1040). 2010 form 1040nr Installment sales. 2010 form 1040nr   Use Form 6252, Installment Sale Income. 2010 form 1040nr You may also have to use Form 4797 and Schedule D (Form 1040). 2010 form 1040nr Casualties and thefts. 2010 form 1040nr   Use Form 4684, Casualties and Thefts. 2010 form 1040nr You may also have to use Form 4797. 2010 form 1040nr Condemned property. 2010 form 1040nr   Use Form 4797. 2010 form 1040nr You may also have to use Schedule D (Form 1040). 2010 form 1040nr Prev  Up  Next   Home   More Online Publications
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The 2010 Form 1040nr

2010 form 1040nr 2. 2010 form 1040nr   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. 2010 form 1040nr 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. 2010 form 1040nr Deduction may depend on your type of business. 2010 form 1040nr Exception for events that benefit charitable organizations. 2010 form 1040nr Food and beverages in skybox seats. 2010 form 1040nr What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. 2010 form 1040nr You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. 2010 form 1040nr The rules and definitions are summarized in Table 2-1 . 2010 form 1040nr You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. 2010 form 1040nr Directly-related test. 2010 form 1040nr Associated test. 2010 form 1040nr Both of these tests are explained later. 2010 form 1040nr An ordinary expense is one that is common and accepted in your trade or business. 2010 form 1040nr A necessary expense is one that is helpful and appropriate for your business. 2010 form 1040nr An expense does not have to be required to be considered necessary. 2010 form 1040nr The amount you can deduct for entertainment expenses may be limited. 2010 form 1040nr Generally, you can deduct only 50% of your unreimbursed entertainment expenses. 2010 form 1040nr This limit is discussed later under 50% Limit. 2010 form 1040nr Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. 2010 form 1040nr Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. 2010 form 1040nr Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. 2010 form 1040nr See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. 2010 form 1040nr You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. 2010 form 1040nr It is not necessary to devote more time to business than to entertainment. 2010 form 1040nr However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. 2010 form 1040nr Table 2-1. 2010 form 1040nr When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. 2010 form 1040nr Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 2010 form 1040nr An ordinary expense is one that is common and accepted in your trade or business. 2010 form 1040nr A necessary expense is one that is helpful and appropriate. 2010 form 1040nr Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. 2010 form 1040nr   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. 2010 form 1040nr Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 2010 form 1040nr You cannot deduct expenses that are lavish or extravagant under the circumstances. 2010 form 1040nr You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). 2010 form 1040nr You do not have to show that business income or other business benefit actually resulted from each entertainment expense. 2010 form 1040nr Clear business setting. 2010 form 1040nr   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. 2010 form 1040nr The following situations are examples of entertainment in a clear business setting. 2010 form 1040nr Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. 2010 form 1040nr Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). 2010 form 1040nr Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. 2010 form 1040nr An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. 2010 form 1040nr Expenses not considered directly related. 2010 form 1040nr   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. 2010 form 1040nr The following are examples of situations where there are substantial distractions. 2010 form 1040nr A meeting or discussion at a nightclub, theater, or sporting event. 2010 form 1040nr A meeting or discussion during what is essentially a social gathering, such as a cocktail party. 2010 form 1040nr A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. 2010 form 1040nr Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. 2010 form 1040nr To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). 2010 form 1040nr Associated with trade or business. 2010 form 1040nr   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. 2010 form 1040nr The purpose may be to get new business or to encourage the continuation of an existing business relationship. 2010 form 1040nr Substantial business discussion. 2010 form 1040nr   Whether a business discussion is substantial depends on the facts of each case. 2010 form 1040nr A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. 2010 form 1040nr   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. 2010 form 1040nr It is not necessary that you devote more time to business than to entertainment. 2010 form 1040nr You do not have to discuss business during the meal or entertainment. 2010 form 1040nr Meetings at conventions. 2010 form 1040nr   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. 2010 form 1040nr However, your reason for attending the convention or meeting must be to further your trade or business. 2010 form 1040nr The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. 2010 form 1040nr Directly before or after business discussion. 2010 form 1040nr   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. 2010 form 1040nr   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. 2010 form 1040nr Among the facts to consider are the place, date, and duration of the business discussion. 2010 form 1040nr If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. 2010 form 1040nr Example. 2010 form 1040nr A group of business associates comes from out of town to your place of business to hold a substantial business discussion. 2010 form 1040nr If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. 2010 form 1040nr The expense meets the associated test. 2010 form 1040nr 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. 2010 form 1040nr (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. 2010 form 1040nr See Individuals subject to “hours of service” limits , later. 2010 form 1040nr ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. 2010 form 1040nr Figure A summarizes the general rules explained in this section. 2010 form 1040nr The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. 2010 form 1040nr Included expenses. 2010 form 1040nr   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. 2010 form 1040nr However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. 2010 form 1040nr Figure A. 2010 form 1040nr Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. 2010 form 1040nr See Exceptions to the 50% Limit . 2010 form 1040nr Please click here for the text description of the image. 2010 form 1040nr Figure A. 2010 form 1040nr Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. 2010 form 1040nr   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. 2010 form 1040nr   The 50% limit also applies to certain meal and entertainment expenses that are not business related. 2010 form 1040nr It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. 2010 form 1040nr It also applies to the cost of meals included in deductible educational expenses. 2010 form 1040nr When to apply the 50% limit. 2010 form 1040nr   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. 2010 form 1040nr You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. 2010 form 1040nr Example 1. 2010 form 1040nr You spend $200 for a business-related meal. 2010 form 1040nr If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. 2010 form 1040nr Your deduction cannot be more than $45 (50% × $90). 2010 form 1040nr Example 2. 2010 form 1040nr You purchase two tickets to a concert and give them to a client. 2010 form 1040nr You purchased the tickets through a ticket agent. 2010 form 1040nr You paid $200 for the two tickets, which had a face value of $80 each ($160 total). 2010 form 1040nr Your deduction cannot be more than $80 (50% × $160). 2010 form 1040nr Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. 2010 form 1040nr Figure A can help you determine if the 50% limit applies to you. 2010 form 1040nr Expenses not subject to 50% limit. 2010 form 1040nr   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. 2010 form 1040nr 1 - Employee's reimbursed expenses. 2010 form 1040nr   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. 2010 form 1040nr Accountable plans are discussed in chapter 6. 2010 form 1040nr 2 - Self-employed. 2010 form 1040nr   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. 2010 form 1040nr You have these expenses as an independent contractor. 2010 form 1040nr Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. 2010 form 1040nr You provide adequate records of these expenses to your customer or client. 2010 form 1040nr (See chapter 5 . 2010 form 1040nr )   In this case, your client or customer is subject to the 50% limit on the expenses. 2010 form 1040nr Example. 2010 form 1040nr You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. 2010 form 1040nr You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. 2010 form 1040nr If the client can deduct the expenses, the client is subject to the 50% limit. 2010 form 1040nr If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. 2010 form 1040nr 3 - Advertising expenses. 2010 form 1040nr   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. 2010 form 1040nr For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. 2010 form 1040nr 4 - Sale of meals or entertainment. 2010 form 1040nr   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. 2010 form 1040nr For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. 2010 form 1040nr 5 - Charitable sports event. 2010 form 1040nr   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. 2010 form 1040nr For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. 2010 form 1040nr Individuals subject to “hours of service” limits. 2010 form 1040nr   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. 2010 form 1040nr The percentage is 80%. 2010 form 1040nr   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. 2010 form 1040nr Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. 2010 form 1040nr Interstate truck operators and bus drivers who are under Department of Transportation regulations. 2010 form 1040nr Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. 2010 form 1040nr Certain merchant mariners who are under Coast Guard regulations. 2010 form 1040nr What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. 2010 form 1040nr Entertainment. 2010 form 1040nr   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. 2010 form 1040nr Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. 2010 form 1040nr   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. 2010 form 1040nr A meal as a form of entertainment. 2010 form 1040nr   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. 2010 form 1040nr A meal expense includes the cost of food, beverages, taxes, and tips for the meal. 2010 form 1040nr To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. 2010 form 1040nr    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. 2010 form 1040nr    Meals sold in the normal course of your business are not considered entertainment. 2010 form 1040nr Deduction may depend on your type of business. 2010 form 1040nr   Your kind of business may determine if a particular activity is considered entertainment. 2010 form 1040nr For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. 2010 form 1040nr This is because fashion shows are typical in your business. 2010 form 1040nr But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. 2010 form 1040nr Separating costs. 2010 form 1040nr   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. 2010 form 1040nr You must have a reasonable basis for making this allocation. 2010 form 1040nr For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. 2010 form 1040nr Taking turns paying for meals or entertainment. 2010 form 1040nr   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. 2010 form 1040nr Lavish or extravagant expenses. 2010 form 1040nr   You cannot deduct expenses for entertainment that are lavish or extravagant. 2010 form 1040nr An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. 2010 form 1040nr Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 2010 form 1040nr Allocating between business and nonbusiness. 2010 form 1040nr   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. 2010 form 1040nr You can deduct only the business part. 2010 form 1040nr If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. 2010 form 1040nr Example. 2010 form 1040nr You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. 2010 form 1040nr Only 4/11 of the expense qualifies as a business entertainment expense. 2010 form 1040nr You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. 2010 form 1040nr Trade association meetings. 2010 form 1040nr   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. 2010 form 1040nr These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. 2010 form 1040nr Entertainment tickets. 2010 form 1040nr   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. 2010 form 1040nr For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. 2010 form 1040nr Exception for events that benefit charitable organizations. 2010 form 1040nr   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. 2010 form 1040nr You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. 2010 form 1040nr The event's main purpose is to benefit a qualified charitable organization. 2010 form 1040nr The entire net proceeds go to the charity. 2010 form 1040nr The event uses volunteers to perform substantially all the event's work. 2010 form 1040nr    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. 2010 form 1040nr Example 1. 2010 form 1040nr You purchase tickets to a golf tournament organized by the local volunteer fire company. 2010 form 1040nr All net proceeds will be used to buy new fire equipment. 2010 form 1040nr The volunteers will run the tournament. 2010 form 1040nr You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. 2010 form 1040nr Example 2. 2010 form 1040nr You purchase tickets to a college football game through a ticket broker. 2010 form 1040nr After having a business discussion, you take a client to the game. 2010 form 1040nr Net proceeds from the game go to colleges that qualify as charitable organizations. 2010 form 1040nr However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. 2010 form 1040nr Skyboxes and other private luxury boxes. 2010 form 1040nr   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. 2010 form 1040nr   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. 2010 form 1040nr For example, renting a skybox for a series of playoff games is considered renting it for more than one event. 2010 form 1040nr All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. 2010 form 1040nr   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. 2010 form 1040nr Example. 2010 form 1040nr You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. 2010 form 1040nr The cost of regular nonluxury box seats at each event is $30 a seat. 2010 form 1040nr You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). 2010 form 1040nr Food and beverages in skybox seats. 2010 form 1040nr   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. 2010 form 1040nr The amounts separately stated for food and beverages must be reasonable. 2010 form 1040nr You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. 2010 form 1040nr What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. 2010 form 1040nr Club dues and membership fees. 2010 form 1040nr   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. 2010 form 1040nr This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. 2010 form 1040nr   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. 2010 form 1040nr You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 2010 form 1040nr Entertainment facilities. 2010 form 1040nr   Generally, you cannot deduct any expense for the use of an entertainment facility. 2010 form 1040nr This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. 2010 form 1040nr   An entertainment facility is any property you own, rent, or use for entertainment. 2010 form 1040nr Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. 2010 form 1040nr Out-of-pocket expenses. 2010 form 1040nr   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. 2010 form 1040nr These are not expenses for the use of an entertainment facility. 2010 form 1040nr However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. 2010 form 1040nr Expenses for spouses. 2010 form 1040nr   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. 2010 form 1040nr However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. 2010 form 1040nr Example. 2010 form 1040nr You entertain a customer. 2010 form 1040nr The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. 2010 form 1040nr The customer's spouse joins you because it is impractical to entertain the customer without the spouse. 2010 form 1040nr You can deduct the cost of entertaining the customer's spouse. 2010 form 1040nr If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. 2010 form 1040nr Gift or entertainment. 2010 form 1040nr   Any item that might be considered either a gift or entertainment generally will be considered entertainment. 2010 form 1040nr However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. 2010 form 1040nr   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. 2010 form 1040nr You can treat the tickets as either a gift or entertainment, whichever is to your advantage. 2010 form 1040nr   You can change your treatment of the tickets at a later date by filing an amended return. 2010 form 1040nr Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. 2010 form 1040nr   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. 2010 form 1040nr You cannot choose, in this case, to treat the tickets as a gift. 2010 form 1040nr Prev  Up  Next   Home   More Online Publications