Tax-deductable Expenses for Holiday Parties

Celebrate the Holidays on Uncle Sam’s Dime

It’s that time of the year, when enthusiastic office workers decorate the office with colorful post-it notes, make-shift holiday trees, and ornaments on cubicles. But while decorations can add a treat to your workplace’s holiday spirit, nothing is appreciated more than capping it off with a holiday party for your employees.

So why not throw a holiday party and write off the expenses? It’s the IRS’ way of having a little holiday spirit. Just abide by some rules and your party-related expenses can be deducted at tax time:

  • Keep it business-related: Use it to promote a product or make a sales pitch. And, use it to conduct business at some time before, during or after the party. Keep the atmosphere and the invitation professional to keep the IRS at bay.
  • Don’t go overboard: Paying the big bucks to have Tony Bennett visit your office and sing “White Christmas” won’t be looked at too kindly by the IRS. Spending lavishly won’t help if your business gets audited.
  • Keep records: Keep your receipts and a list of who came and whether they’re a customer or an employee. Also, document the event by taking pictures. If the IRS decides to be a Grinch and audit your business, having the proof will help you defend the expenses.
  • Do the math: Expenses for employees are 100 percent deductible, while those for customers are deductible at 50 percent. Apportion the expenses by the ratio of employees to customers who attended.

Holiday parties can be an enjoyable event for a business’s employees, and Uncle Sam is willing to pick up part of the tab.

If you have back tax debt, Uncle Sam may also pick up part of the tab – if you hire a tax attorney. If not, you could end up with a lump of coal like a wage garnishment or bank levy in your Christmas stocking.

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