Happy Holidays everyone, now it’s time for your yearly office party, and yes, it is deductible. No, not everything can be deducted 100% as many have reported in the media. There are specific rules for both corporations and small businesses filing schedule C. Why not look this up or talk to your accountant about exactly what you can and cannot deduct.
In fact, there was a great article on this the other day in Hot Rod and Restoration News Magazine, a cool trade journal for those of us involved in the automotive industry. The article was on this very topic and titled; “How to Write Off the Expenses for Your Company’s Holiday Party,” posted on December 8, 2010 and written by the all famous Devlin Smith!
Indeed, there was another great article which was also referenced in that article by Roni Lynn Deuth which appeared in Women Entrepreneur Magazine titled; “Party On for a Tax Break – Show Appreciation for Clients, Customers, and employees – and Get a Tax Deduction, Too!” which appeared on December 2, 2010.
If you are a small business and file a Schedule C – then under the IRS Codes under “meals and entertainment category” is 50% for allowable expenses. Some people try to bury it and categorize it in an Office Meeting or Office Expense, but technically that is not really appropriate. Many companies will buy things like candy, coffee, etc, while at the office supply store where they sell it, and since that receipt is from an office supply store then it’s customary to deduct it as office expense, which mean it is 100% deductible.
Big Corporations have different rules, and event planners and such work to keep the party items less than extravagant so they don’t get into problems, like Tyco’s Dennis Kozlowski’s party for his second wife Karen’s 40 TH B-party, which cost $2 million and he tried to have Tyco pay half or $1 million. That was obviously over-the-top and definitely not deductible, not even half of it.
So, for your little company please stay within the rules, and have a great office party this holiday season, and only deduct what is appropriate as per the tax law. Make sure your business accountant does it correctly, and check with them in advance so you don’t mess this up, as it can be a “red flag” trigger at the IRS is those expenses appear to be out of line. Please consider all this.