Clear Business Setting Test

DEFINITION of 'Clear Business Setting Test'

A test for deductibility of business-related dining and entertainment expenses. The clear business setting test mandates that there can be no other motive for incurring these expenses except to further the taxpayer's business. For example, paying dining and entertainment expenses for an associate with whom the taxpayer has no social or personal connection will usually qualify as a deductible business expense.

BREAKING DOWN 'Clear Business Setting Test'

Qualifying expenses can include meals and entertainment related to generating publicity, price rebates for regular hotel or restaurant customers, and the cost of renting a display room at a convention. Usually, however, the taxpayer must be present at the function and there cannot be substantial distractions, such as at a nightclub or sporting event. If the associates present are a mixture of business and personal associates, then the costs incurred are also generally nondeductible.

RELATED TERMS
  1. IRS Publication 535 - Business ...

    A document published by the Internal Revenue Service (IRS) that ...
  2. Form 2106: Employee Business Expenses

    A tax form distributed by the Internal Revenue Service (IRS) ...
  3. Business Interest Expense

    The cost of interest that is charged on business loans used to ...
  4. Form 3903

    A tax form distributed by the Internal Revenue Service (IRS) ...
  5. IRS Publication 503: Child And ...

    A document published by the Internal Revenue Service that outlines ...
  6. Tax Deduction

    A deduction from gross income that arises due to various types ...
Related Articles
  1. Financial Advisor

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  2. Personal Finance

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
  3. Retirement

    10 Tax Benefits For The Self-Employed

    Running your own business has both personal and financial perks.
  4. Personal Finance

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  5. Financial Advisor

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
  6. Personal Finance

    8 Little-Known Tax Deductions And Credits

    These little-known tax deductions can lead you to finding your own unique expenses that you didn't know you could claim.
  7. Financial Advisor

    Don't Miss These Tax Deductions

    Knowing the tax deductions you're entitled to can make or break your bank account. Do you know about all these insurance-related deductions?
  8. Personal Finance

    8 Tax Benefits For The Self-Employed

    Profitability in business depends on minimizing costs and maximizing resources. Here are several tax benefits that are available for the self-employed.
  9. Financial Advisor

    How to Deduct Medical Insurance Premiums

    An overview of tax breaks for those who pay medical insurance premiums.
  10. Personal Finance

    Are Your Job Search Expenses Deductible?

    Looking for a job can be expensive. While some of the costs can be deducted, the IRS will not blindly sign off on them.
RELATED FAQS
  1. What are the most common business deductions and expenses for small businesses?

    Learn about some of the most common business tax deductions available to small businesses that can reduce net business expenses. Read Answer >>
  2. How do I know whether to itemize deductions or take the standard deduction?

    Taking the standard deduction is the easiest and most common method chosen by filers, but many taxpayers may wind up paying ... Read Answer >>
  3. What are the most common operating expenses for an online business?

    Learn about the common expenses of online businesses and find out about some of the tax implications of new business expenses ... Read Answer >>
  4. Why are capital expenses (CAPEX) treated differently than current expenses?

    Learn the difference between capital expenditures, or CAPEX, and current expenses, and determine why they are treated differently ... Read Answer >>
  5. What are some commonly missed deductions for business owners?

    If you own a business, you are eligible to deduct certain business-related expenses. These include deductions for the following: ... Read Answer >>
  6. How is the deductible I paid for my insurance claim treated for tax purposes?

    Find out how your health insurance deductible is treated for tax purposes and under what conditions you may be able to deduct ... Read Answer >>
Trading Center