Office holiday parties are in full swing this month, and if you’ve ever planned one of these shindigs, then you know how pricey they can get. But don’t let that discourage you; there are many benefits of throwing a holiday party for your employees. And, as a business owner, the IRS allows you to write-off the expenses of your holiday office party! But not without some guidelines, of course.
For your office holiday party to be 100% tax deductible, follow these IRS guidelines:
According to the IRS, a standard 50% limit for deducting business-related meal and entertainment expenses does not apply to the expenses of providing recreational, social, or similar activities for your employees. As long as your party is held primarily for the benefit of your employees who are not highly compensated (making less than $120,000 per year), then you can take the full deduction. However, as described in IRS Publication 535, if your holiday party has a business motive and your guest list includes clients, potential clients, and/or customers, then you will be subject to the 50% limitation rule.
No Extravagant Expenses
Deduct reasonable expenses and stay within your means. If you’re a small company, you don’t need to spend thousands of dollars on an office party, and if you do, the IRS may get suspicious. For a general rule, the amount spent on your event shouldn’t be a major percentage of your business expenses for the year. Don’t worry, you can still have a good time and throw a great office holiday party while staying on a practical budget.
Keep Detailed Records
If your party happens to raise a red flag with the IRS, you want to make sure you have thorough documentation to support your office festivities. To take full advantage of this tax write-off, save your receipts for all the expenses incurred for the party and keep a comprehensive list of all attendees.
So go ahead, celebrate the season with a fully deductible office holiday party! After all, your employees work hard and deserve some fun and appreciation, especially at this festive time of year.
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