Tax Benefits of Company In-Home Holiday Parties

What’s better than throwing a party that can also provide tax benefits? How is it possible, and how can your firm and your clients get in on this opportunity?

Right now, we are in the midst of the company holiday party season. What better way to let employees know they are appreciated than a company holiday party that is 100 percent deductible? Under most circumstances, a company party for employees and their family members is 100 percent deductible as a business expense. Even better, unlike many other entertainment deductions, business talk is not even required.

Business owners who throw in-home parties may be allowed an entertainment expense deduction on their tax returns. There are several types of in-home parties with varying amounts allowed for different types of entertainment deductions.

Here are a few points to keep in mind:

• Make sure there is an open invitation to all employees. This should be a company holiday party and not selected friends.
• If you want to deduct 100 percent of your party expense, don’t invite clients and, of course, advise your customers to do the same. If you do invite anyone else, only 50 percent of any expenses will be deductible for clients or customers. That is, if you choose to have a holiday party with employees and clients/customers, you will need to determine the expenses that should be allocated to employees, for which you can get a 100 percent deduction, and those that should be allocated to clients/customers, for which you only get 50 percent.
• A holiday party can be a tax-efficient replacement for a holiday gift to employees. While a gift can become taxable to the employee if its value exceeds $25, a company holiday party is a way to make employees feel appreciated without any tax consequences to the attendees. Gifts and employee parties are equally tax-deductible to the employer, but the holiday party option won’t leave employees feeling as if they’ve been cheated or inconvenienced by an unexpected tax bill.

For more information on business entertainment expenses, review Topic 512 from the IRS. Have fun and enjoy the holidays!

Editor’s note: For more tax tips for the holidays, read “Tis the Season: A Tax Guide to Holiday Giving” on the Intuit® ProConnect™ Tax Pro Center.