Bastian Accounting for Photographers

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How To Deduct Your Holiday Party

Soon it will be the most wonderful time of the year. Hosting a holiday party is a great way to boost holiday spirit and employee morale. It’s even better when you can deduct the cost of the celebration.

How can I deduct 100% of the cost?

You read that right, you can legally deduct 100% of your holiday soiree. If you meet these 4 requirements:

  1. Must be “primarily” for the benefit of employees and their families.

  2. ALL employees must be invited (not just a selected group)

  3. Attendees consist of ONLY employees and their families.

  4. Expenses must be reasonable (the IRS has very strict rules around not being able to deduct “Lavish or Extravagant” items. What would be a reasonable expense for say, Google or Disney, is probably not the same for your business)

But.. what if I want to invite non-employees?

If you invite non-employees such as independent contractors, potential customers, or current customers you can only deduct 50% of the expenses related to non-employees. For example, if you have 100 attendees and 75 of them are employees and 25 are customers you can deduct 100% of the 75% related to employees and 50% of the 25% related to the non-employees. (not too confusing right?)

What about the general public?

You can deduct 100% of parties held for the general public as this is more of a promotional advertising expense.

Documentation, Documentation, Documentation!

You didn’t think you were going to get off that easy, did you? You will want to have the following documentation on file:

  • List of attendees (Categorized: Employees, Customers, Contractors, etc)

  • Receipts for all costs you are deducting

  • Cost allocation based on the attendee breakout

Technical Accounting Stuff

If you do not have the following accounts already set up in your chart of accounts you or your accountant should add these to help classify these expenses appropriately for tax time.

  1. Meal & Entertainment 50%

  2. Meals & Entertainment 100%

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Reference: https://www.irs.gov/pub/irs-pdf/p463.pdf