The holiday season is a perfect time to show your staff appreciation and boost morale with an office party. As a business owner, you can deduct 100 percent of party costs so long as certain conditions are met.
Pennywise Tax Strategies put together this simple guide to hosting a fabulous, deductible holiday bash.
Party Deduction Eligibility
In order for your year-end office party to qualify as a deductible expense, be sure to follow these IRS rules:
Guest List Restrictions
Only invite company staff, partners, and their family members. Don't include clients, vendors, or other business contacts. Their presence limits deductions to just 50 percent due to restrictions on entertainment and meal deductions. An employees-only guest list is key.
Focus the Fun on Non-Highly Compensated Staff
To qualify for full deductibility, the party should aim to benefit staff outside your highly compensated inner circle. These are employees who earned under $135,000 in the preceding tax year or have less than 5 percent company ownership. Arrange celebrations focused on brightening the season for lower-paid team members.
Keep It Reasonable
Lavish affairs at five-star venues likely won't comply. Consider throwing parties at the office, local restaurants, or low-cost event spaces. Although there's no hard cap on spending, use common sense.
Document All Expenses Thoroughly
- Venue/room rental fees
- Food and drink costs
- Entertainment like music, games, or decorations
- Favors, supplies, prizes, and giveaways
For any deductible business meal, you should document details like the date, total cost including tax and tip, restaurant name, who attended, and the business relationship/purpose. Maintaining this information helps support your deductions in case of an audit.
Employee Gift Deductions
You can deduct up to $25 per employee for holiday gifts like hams, poinsettias, or other tangible items. Cash and cash-equivalent gifts like gift cards don't qualify. Consider branded gifts for more of a tax benefit. Keep thorough records of gift expenses and recipients.
Contact Pennywise Tax Strategies Today!
We hope this overview gives you clarity on how to make the most of holiday party deductions. Reach out to us with any other year-end tax planning questions! Our team is always happy to help clients celebrate tax-smartly.