What expense category does client entertainment come under?

Trying to figure out where client entertainment fits into your expense categories? You're not alone. Knowing how to classify these expenses can make your accounting smoother and keep your financial reports accurate.

Classifying client entertainment expenses

Client entertainment expenses can be classified into different categories based on how they're incurred. Proper categorization helps in accurate accounting and compliance. Here are some common ways to classify these expenses:

• Meals and entertainment: This includes costs for client meals, drinks, tickets to events, or venue hires for hosting clients.
• Travel: If entertaining clients involves travel, expenses like transportation, lodging, and associated costs fall under this category.
• Marketing and advertising: When client entertainment aims to build relationships or attract future business, these costs might be considered marketing expenses.

Depending on the context, some expenses might fall under other categories relevant to your business.

Examples of client entertainment expenses

Here are some typical examples of client entertainment expenses:

• Taking clients out for dinner or drinks at a restaurant to discuss business opportunities.
• Hosting a client appreciation event, like a holiday party or networking reception.
• Providing tickets to sporting events, concerts, or theater performances for your clients.
• Organizing golf outings or other recreational activities to strengthen client relationships.
• Offering hospitality suites at industry conferences or trade shows for client meetings.

For example, if you spent $500 on tickets to a baseball game for a client, that cost would be considered a client entertainment expense.

Tax implications of client entertainment

Understanding the tax implications of client entertainment expenses is important.

• Non-deductible entertainment costs: Most client entertainment expenses are non-deductible due to tax regulations like the Tax Cuts and Jobs Act of 2017.
• Partial deduction for business meals: Business meals with clients may still be 50% deductible if they meet certain criteria.

Accurate documentation of expenses, including receipts and the business purpose, is essential for compliance. Tax rules also vary by country. For instance, in Australia, client entertainment expenses are generally not tax-deductible. Always consult a tax professional to understand how these rules apply to your business.

Let Ramp automate your expense process

Managing client entertainment expenses doesn't have to be a hassle. With Ramp, you can automate the categorization, tracking, and management of all your expenses. Our platform helps ensure accurate financial records and compliance with tax regulations, so you can focus on building strong client relationships.