CPA Blog

CPA & Accounting Topics for Business
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Have Your Cake and Eat it too!

Last Friday, we celebrated the end of tax season with an After Tax Season Employee Party. I wanted to do something for the staff in appreciation for all of their hard work. We celebrated with dinner, drinks, some games and lots of laughter - believe it or not, accountants aren't as boring as you might think! In addition to being lots of fun, this little shindig is 100% tax deductible (unlike most entertainment deductions which are only 50%)! I call this tax strategy "Having your Cake and Eating it too! So let me tell you how to do it...

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 take your employees to Vegas... Just meet the qualifications below and pack your bags!

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...
When you think of business entertainment, you likely think of the terms "directly related" and "associated" entertainment. Smile. Those terms do not apply to employee entertainment!

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, what's your "ordinary and necessary" reason for partying with your employees?

Your reason might be as simple as improving employee morale and loyalty to your business. Or you might want to ensure that your business might offer more fun and better working conditions than the competition.

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 it's been awhile since you've done something nice for your employees (besides signing their pay checks), start planning something for this Summer. We are blessed to live in an area that has something for everyone, so your options are not limited! You'll receive a nice little deduction and your employees will appreciate you for the wonderful boss that you are (or at least like you a little more).

If you have questions about what qualifies and what doesn't or would like to invite us to your company party, just give us a call at 832-482-4240!

Don't Forget Mother's Day!
I have to admit I am not one of the best son's at giving my mother recognition on Mother's Day. I often forget to send Mom a card but I usually call her on Mother's Day & chat awhile. But this weekend, Mom is coming to our house (driving through the rain from San Antonio) and my middle sister is coming from Beaumont with her family. It should be quite the celebration. I am looking forward to it!

IRS Changes Filing Deadlines for W-2 & 1099 Forms

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