Updated: Jan 11, 2020
I know, you may be asking yourself, ‘but aren't all of the parties over?’ Yes - sad. Now we’re all probably trying to be healthy and going to the gym again - don't forget to make those SMART goals. See blog post on SMART goals - for now, let's focus on PARTIES!
Did you throw an annual holiday party for your employees? Yes, these are great for company morale but let’s talk about the IRS rules and regs (regulations).
Rule numero uno: the party must be for employees and their spouses
100% of the costs associated with throwing a company party for employees and their spouses are 100% deductible. That’s right, even the FOOD. Typically meals are only 50% deductible but if you clearly break out a line item in your books for ‘employee holiday party’ - those costs will be 100% deducted.
However, if the party includes clients, customers, friends, vendors, independent contractors, etc., make sure it has some sort of business related discussion and if it does, the costs are limited to the 50% limitation - bummer.
No deductions allowed for family members, super bummer.
If the party has both employees and others (that sounds like a fun party) please invite me, Your Tax Coach, next year! Okay - now back to deductibility.
Rule #2: be modest
The IRS says it cannot be ‘lavish or extraordinary.’ What does that mean? Who knows? Well I can tell you what it means based off of case law, but let’s chat if you think you’re throwing a luxurious party! Which,again, please invite me.
Rule #3: just like your kid's classroom - you must invite everybody
The invitation must be extended to ALL employees. You can’t pick and choose your faves (you also may get sued for discrimination). Keep a copy of the invitation and make sure it has your company name on it.
Rule #4: documentation is the name of the game
Like most deductions, documentation is key! Keep a copy of the guest list and expenses.
Hopefully your accountant/CPA knew about your holiday parties in past years and fully deducted them, if applicable! Now that I’m your tax coach, I’ll be sure to ask if I don’t see a separate line item for employee holiday party or reply here and let me know if you threw a party!
Have other all-employee events? Let’s chat to see if they’re deductible.
Last year, my business owner clients saved an average of $43,863 in taxes alone! Are you on my client list for 2019 tax returns? What are you waiting for? Let’s chat!
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