Monday, September 26, 2016

It’s football season! So how does that skybox rental work for taxes?



If you are fortunate enough to afford a skybox or work for a company that has one, how does the box fit into taxes? First, skybox rentals are subject to the general business-related entertainment expense rules as well as rules specific to skybox rentals.

General Business Related Entertainment Expenses

Entertainment expenses are deductible if they are either "directly related to" or "associated with" the active conduct of your trade or business or investment activities.

·         “Directly related to” requires an active business discussion during the entertainment event aimed at getting immediate revenue (as opposed to generalized good relations).

·         The "associated with" test only requires that you have engaged in a substantial and bona fide business discussion before or after the entertainment event. If the discussion and entertainment event occur on the same day, the test is passed.

In general, qualifying entertainment expenses are only 50% deductible.

Meals are 50% deductible to the extent their cost is not "lavish or extravagant" under the circumstances, and either an owner or employee is present at the meal.

Special Skybox Rules

When a skybox is leased for multiple events, the deduction can only be based on the value of non-luxury box seats for the same event. For example, say you rent a 20-seat skybox at a stadium for $6,000 for three ballgames, where a non-luxury box seat costs $20. Twenty seats times $20 for three events totals $1,200. Applying the general 50% limitation, the deduction would be $600.

Skyboxes leased for single events are deductible at 50% and subject to the general business related entertainment rules discussed above.

Other factors in determining the deductibility of the skybox rental include whether the tickets for the event are included in the price of the skybox lease. If included in the skybox lease, the expense is not deductible.

Summary

Multiple event skybox lease deductions are limited to 50% of the value of non-luxury box seats when the lease does not include the tickets.

Single event skybox rentals are deductible at 50% subject to the general 50% limitation.

If you are looking into leasing a skybox, consult with a qualified tax professional to understand the deductibility of the lease.