It’s that time of year when you’re probably planning your company’s holiday/employee party. Having a holiday party is fun, especially when alcohol is being consumed. Who doesn’t love discussing those embarrassing holiday party moments on Monday morning right?
If you own a business and are planning a party for your employees or customers, then you need to continue reading this article to learn how to hold a tax deductible office party for your employees.
As a reminder, the tax code contains the following two categories for your entertainment tax deductions: (1) 50 percent deductible entertainment (such as taking your staff out to lunch) and (2) 100 percent deductible entertainment (such as a holiday party).
If your business chart of accounts does not contain these two different accounts for entertainment, then it should because this article will explain how you can take a 100% deduction for your holiday or employee party.
Inviting Customers & Independent Contractors
A tax deductible holiday party for your employees generally must be just a party for your employees. If only employees and their family are present along with the business owners, then it’s very likely a fully tax deductible event.
It cannot, however, be a party for just you and your family nor can it be a party for just customers either. A party for the employees is 100% deductible but if non-employees are present, then it may still be deductible, but not at 100%. For example, say 25 employees and their spouses and 50 customers are at the party, then half of the cost would be 100% deductible and the other half would be deductible at 50%.
While you don’t need to do anything special to claim a deduction for your employees and their spouses, for those looking to claim a deduction for non-employees invited to the party, Gedeon Law & CPA advises clients to incorporate a simple practice in their party invitation. Specifically, we recommend including your business pursuit in the invitation to non-employees by including a phrase like “Join Gedeon Law & CPA for its annual holiday party and help us celebrate 6 years in business.”
Where To Hold The Party
It’s recommended to have the party at the office or a venue other than your home.
How to Document the Party
You do not need a business reason to deduct the cost of a holiday party that is primarily to benefit your employees.
It’s recommended that you save your receipts for all the party expenses. Also, keep a list of those in attendance; with names, address etc. Furthermore, note the relationship of the attendee to your business with this record (i.e. customer, contractor, employee, family). We recommend having a guest book at the party. Don’t forget to also take pictures at the party.
And finally, be sure to let your tax preparer know that the cost for the employee party is a 100% expense apart from your other entertainment costs which are not. At Gedeon Law & CPA, we recommend tracking these expenses using the 100% deductible entertainment category on your chart of accounts.
At Gedeon Law & CPA, we are always combing through the tax code to identify opportunities that help our business clients maximize their tax deductions.