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FREE CONSULTATION818-436-2775
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How to Write Off Your Holiday Party

No one can object to a holiday party– not even the IRS! As the holidays approach and you begin to plan festivities, keep the tax code in mind. If you play your cards right, the entire event may be deductible:

General Guidelines

The IRS considers company parties to be an ordinary business expense. Parties and entertainment are an important part of the way that employers compensate their workers. If your workers are the only people in attendance, and all of your workers have been invited, you can deduct 100% of the party’s cost from your taxes. A party is also fully deductible if you open it up to the general public, as companies have leeway in their efforts to improve public relations.

While you may deduct the cost of parties for employees and the general public, you should generally try not to spend too much money on them. The more lavish the party, the more likely the IRS will see it as excessive, exposing you to potential audits.

Family and Friends

Employees are allowed to bring their spouses and significant others to holiday parties. Business owners, however, may not invite their entire families. Parties are tax-deductible to the extent that owners throw them for the benefit of their workers. They are not an excuse to give things to their families.

Inviting friends is not tax-deductible, and whatever portion of the party’s costs is spent on their entertainment must be included in your taxes. The only exception is if your friends are also customers or business associates, but then you must deal with:

Customer Considerations

Whereas parties open to the public are fully deductible, parties open only to customers and associates are more complicated. Spending on such guests is not tax-deductible unless you talk about business during, immediately before, or immediately after the event. Even then, you can only deduct half of the money you spend on such guests. You must also carefully document how the party related to business as well as all your spending, and you must provide accurate estimates of the amount you spent on the guests.

 

As an experienced accounting firm in Los Angeles, ATPP provides an outsider’s perspective on saving money. We offer some of the most affordable payroll services in the industry, minimizing our clients’ tax obligations and increasing their profits. For more information, visit our website today.