After the game, claim a deduction

Nation's Business, March, 1997 by Gloria Gibbs Marullo

If you play by the rules, you can take a client to a basketball game, for example deduct up to half of the cost, and keep Uncle Sam safely on the sidelines.

Sports tickets usually fall under the "meals and entertainment" tax rules, which limit your deduction to 50 percent of your actual cost. So if you use two $50 tickets to take a client to see a basketball game, your tax deduction would be $50. The math is simple. It's the paperwork that causes the problems.

"Document, document, document," says Harry Cohen, a partner with Stonefield Josephson, an accounting firm in San Francisco. "The problem is people don't write down what business was discussed before or after the game."

In order to deduct 50 percent of the tickets' face value plus the costs of food and beverages, you must have a written record of the amount of the expense, including receipts, as well as the time and place of the entertainment, the nature of the business that was discussed, and the business relationship between you and the person who was entertained.

No Scalpers' Fees

Note that deductions are based on face value, says Cohen. You can't use a higher price paid to a scalper or even a ticket broker. Consequently, if the face value of two tickets is $80 but you pay $160 for a sold-out playoff game, you are limited to a cost of $80, which becomes a $40 tax deduction.

To be safe, you should maintain an entertainment log that you update the day of each event.

Some businesses have tried--and failed--to deduct the full price of tickets as an "advertising" expense. If it's a ticket, it's entertainment.

If you want to deduct the full cost of tickets, however, there is a perfectly legal way to do so: Hand over the tickets to clients and prospects as gifts. Bear in mind, though, that tax rules limit your deduction for gifts to $25 per recipient per year.

In addition, the gift deduction can be claimed only if you do not attend the event with your client.

Moreover, you have to maintain records on gifts, similar to the documentation required for entertainment expenses.

If you do attend with the client, you can claim only the entertainment deduction.

The View From On High

Tickets are one thing, but sky boxes are in a class by themselves. If you rent a sky box for just one event, you can use the face value of the sky-box tickets--subject to the 50 percent limitation. If, however, you rent a sky box for a series of games, then you are subject to the sky-box rules.

Even though sky-box tickets are purchased at face value, the tax laws limit the deductible cost--before the 50 percent limitation--to the highest-priced ticket not in a sky box for each event.

Bruce Belman, a partner with Cohen & Co. an accounting firm in Cleveland, says companies with sky boxes must do an event-by-event analysis of tickets to determine the tax cost of a sky-box ticket. "The Gund Arena here in Cleveland must get a lot of requests," says Belman, "because they immediately faxed me a breakdown of ticket prices by event for a client with a sky box."

Sky-box events aren't limited to sports. The Gund Arena, for example, hosts more than 100 other events throughout the year, ranging from classical-music concerts to professional wrestling. Ticket prices range from $10 to $215, says Kathy Burns of the Gund Arena's accounting department.

Tickets to college sports events are subject to the same rules on gift and entertainment expenses that apply to professional teams. Some universities, however, require fans to pay a fee to join a booster club before they can purchase football or basketball tickets. "You used to be able to deduct the club fee," says Cohen, "but the Internal Revenue Service closed the loop."

Whether you're into sports, opera, or other activities, if you have a client who shares your interest, Uncle Sam will help you pick up the tab if you take the time to document names, dates, places, and the business you discuss before, during, or after the event.