– BY MADDIE CRAIG | 2024
As the year winds down, one of the most anticipated events in any workplace is the ✨company holiday party.✨ It’s a chance to show appreciation for your team’s hard work and bring everyone together for a moment of celebration.
But if you’re in charge of planning the party, you’ll want to make sure it’s not only memorable but also tax-deductible. Here’s what you need to know to stay compliant with tax rules while hosting a fantastic event.
1. The Guest List: Open to All Employees
One of the most important factors in ensuring your holiday party expenses are tax-deductible is making the event open to all employees. The IRS specifies that for an event to be considered a legitimate business expense, it should primarily benefit all staff members—not just select teams, top executives, or clients. By making your party inclusive, you’re not only fostering team spirit but also positioning your event to qualify for deductions.
2. Proper Documentation is Key
When planning your holiday party, keeping detailed records is essential. The IRS requires thorough documentation for business expenses, and holiday parties are no exception. Make sure to collect and keep receipts that detail:
Date of the event
Time and location of the party
Total amount spent
List of attendees
Purpose of the event
This type of documentation helps protect your company in case of an audit and ensures that you have the evidence needed to claim the expense as a deduction. An organized approach to record-keeping will not only make your accounting team’s job easier but also streamline the process when it’s time to file taxes.
Tip: Consider using an expense tracking app or a digital filing system to store receipts and relevant documents in one convenient place. This makes retrieval simple and minimizes the risk of losing important information.
3. Avoid Extravagant and Lavish Expenses
While it might be tempting to go all out and host an extravagant party with luxury perks, it’s crucial to exercise some restraint if you want your expenses to remain deductible. According to IRS guidelines, business expenses must be “ordinary and necessary” and should not be excessive or lavish.
What does this mean? You don’t have to skip the fun or go completely budget-friendly, but hosting an over-the-top party that far exceeds what is considered reasonable for your company’s size and budget may raise red flags and potentially disqualify your expenses.
Example: A holiday party at a modest local venue with catered food, entertainment, and decorations would likely qualify as a reasonable expense. On the other hand, a luxury event at an exclusive resort with extravagant gifts and high-end entertainment could be viewed as excessive.
4. Consult Your Tax Accountant
While the guidelines for holiday party deductions are relatively straightforward, every business’s situation is unique. Factors like company size, annual revenue, and previous business expenses can all impact how the IRS views your holiday party spending. To avoid any missteps, it’s wise to consult with your tax accountant or financial advisor. They can provide personalized advice based on your business’s financial health and ensure that you’re in full compliance with the current tax laws.
Planning a company holiday party can be a lot of fun, and knowing that it’s tax-deductible is the icing on the cake. By making the party inclusive for all employees, keeping detailed records, staying reasonable with expenses, and consulting a tax professional, you can create an event that not only boosts morale but also supports your company’s financial well-being.
So, go ahead and start planning that festive gathering! 🥂 Just keep these guidelines in mind to enjoy the celebration without worries and set yourself up for smooth bookkeeping when the season ends.
Meet The Author
Maddie Craig is the founder of Blue Cypher Bookkeeping, a detail-oriented bookkeeper, and definitely a “numbers nerd”! She is passionate about helping organizations understand the full story of their financials and using it to make more confident decisions and grow strategically. She has experience working with a wide array of clients, including small businesses and non-profit organizations. When not crunching numbers, she and her husband enjoy traveling, being active in the community, and sharing their love for good food with friends and family.
Comentários