The turkey’s been stuffed and we all survived Black Friday, which means all of December’s holidays are right around the corner. We’re sure you have your share of soirees to attend, but did you know your company’s holiday party can be written off as a business expense? Uncle Sam has a gift for you – just make sure to follow his rules below!
The IRS is very specific about who can attend in order for the party to be 100% deductible. Typically, holiday parties are for employees only, and that’s where you’re in luck – these are fully deductible. However, you cannot invite your personal friends or family; guests of your employees are also fully deductible, however. Further, if you invite clients or prospective clients, the costs associated with their attendance is at 50%. If you would like to host your clients, we recommend holding a separate party to ease the expense processing. Keep in mind that parties for clients must have a business element, like a discussion or presentation.
Standard party expenses are expected by the IRS, like food, drink, decorations, and supplies, but don’t get too lavish. If you’re a larger company, of course a few thousand dollars is required, but this amount for a small company flies a red flag. Further, this amount should not be a significant portion of your overall expenses, or come off as unbalanced.
Keeping your records is always a must, but we especially recommend it for business expenses, where the chances of getting audited are slightly higher. This means retaining receipts of course, but also ensuring all transactions are recorded in your accounting department, and even going to the lengths of saving the guest list, a copy of the invitation, and any other proof of the nature of the event(s).
Ready to plan your holly jolly festivities? If you’re unsure about any expense write offs, consult your tax professional before and after transactions are completed – be sure to keep these receipts separate for them to more easily give the best recommendations.
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