Save Your Receipts; Your Office Holiday Party Expenses May Be Tax Deductible

With office holiday parties beginning soon, business owners should be happy to know that the TCJA still allows holiday parties to be used as a deduction. However, there are precautions to take to ensure that your company party is in compliance with the IRS standards. Here are a few tips to ensure that your party is both a blast and also tax-deductible.

First, don’t forget the exceptions! Holiday parties are fully deductible; just make sure to save all receipts and remember the circumstances. You are allowed to invite employees and their families, but inviting clients begins to muddy the waters and is therefore not advisable. Some businesses even provide their employees with a “de minimis gift” that does not exceed the value of $100; this is also deductible!

Secondly, consider the substance of the event. Is it being held at sporting venue instead of an office, restaurant, or convention center? If so, the IRS could consider the holiday party as an entertainment event instead of a company social. To prevent something like this from occurring, you should try to maintain proper documentation and be careful in choosing your location.

Proving the legitimacy of the holiday party is essential. Businesses should document the time, place, cost, attendees, business relationship, and purpose of their holiday party. The last two are the most commonly elements that businesses fail to meet in an IRS audit. Stating your business purpose is easily avoidable by simply stating “2019 holiday party and year-end meeting”. Finally, try to keep the costs reasonable and necessary. In the past, the IRS has failed to recognize parties that are lavish or extravagant. While there is no bright lined test in determining the threshold amount that is inappropriate, in a previous case a taxpayer purchased a $1,000 bottle of wine and as a result the entire meal was non-deductible. Therefore, it is best to err on the side of caution and maybe not buy an ice sculpture for each of your employees.

If you have any other questions about other business deductions, the professionals at The Center for Financial, Legal and Tax Planning are more than well-equipped to answer your questions. Please contact us at (618) 997-3436.