Holiday Party as a Tax Deduction?

Business Tax

It’s the most wonderful time of the year! Time when the company is thinking about celebrating a good year and sharing good cheer with the staff and clients. What a perfect way to say thank you to the folks that work for you and the customers you service. Eat, drink and be merry!

Before you rush to sip a libation and enjoy the holiday treats, we want to make sure you understand the tax deductibility of the event. Wasn’t scrooge an accountant?

With careful planning and consideration of the guest list your holiday party can be 100% deductible.

Good tidings for the company holiday party – it could be 100% deductible! The IRS and the courts are quite generous when it comes to allowing your company to deduct the costs of a holiday party. Parties that are for all employees (do not discriminate) and their spouses are in most cases 100% tax deductible. And there is no requirement to discuss business before, during or immediately after like in most business entertainment/meals.

Expenses for providing social activities for employees, including food, beverage and entertainment costs for a company holiday party are 100% deductible as long as the event is primarily for employees and not customers, centers of influence and friends of the owners.

Holiday parties for vendors, centers of influence and friends and family of the owners are not 100% deductible. These entertainment events are subject to the 50% partial deduction or may not be deductible at all.

Technically, if your party has both employees and non-employee attendees you need to allocate the costs between the 100% employee the 50% non-employee business portion and the personal portions. Most companies have two separate parties (100% / 50%) to avoid the accounting that the above rule would require.

Final Thoughts

  • Cash Gifts to your employees or their spouses, must be part of compensation reported on employee’s W-2.
  • Noncash gifts to employees or their spouses in excess of $25 should be included in the payroll of your employees.
  • Booze ban by IRS? It is actually okay to serve alcohol (in moderation) at company parties, it does not affect the deductibility.
  • No amount of Eggnog can make you or anyone sound like Bing Crosby and “Grandma got run over by a reindeer” is not better the louder it is sung.

For more information see IRS Publication 535 to locate the exception to the 50% deduction for meals and entertainment, or fill in the form below and our team will be in touch.

Author: Glenn Frank

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