The season of Holiday parties is upon us and I have been lucky enough to attend some wonderful parties. My clients really know how to celebrate and show their appreciation! These business owners will be excited to hear that their Annual Employee Holiday party is 100% deductible!
What type of party qualifies for the 100% deduction?
For the most part, holiday parties, annual picnics, summer outings qualify for the 100% deduction. You can even turn your employee meetings into a party and deduct it! Just meet the four qualifications below!
Who qualifies for the 100% deduction?
Entertainment expenses must be "primarily" for the benefit of employees other than a "tainted group." The tainted group consists of any employee paid more than $110k a year, a 10% owner or any family member of a 10% owner.
As the business owner, you also belong to the tainted group. That's not a big deal. You just need to make sure that partying with the employees is primarily (more than 50%) for the benefit of the employees.
You can also deduct the cost of entertaining your employee's spouses the same as you deduct the cost of entertaining the employees. Thus, a party for employees and their spouses is 100 percent deductible.
Now, you need a reason to entertain your employees...
You still need to satisfy the "ordinary and necessary" business purpose test. An "ordinary and necessary" expense simply means an expense that is "appropriate and helpful" for your business. So boosting the moral of your work force, helping everyone feel appreciated makes your Christmas party 100% deductible
Don't forget to Document Everything!
You must document your 100% deductible employee entertainment expenses, just as you must document any other entertainment. Always remember to write down the "who, what, when, where & why's". Like all deductions, you can't nail it down without writing it down.
So, if you're wondering if your Annual Holiday Party is deductible - just send me an invite and I will come out to "observe" the festivities to make sure you are not missing any deductions!