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Your company party may be tax deductible

Posted on September 23, 2017

Summer has come to an end and fall is just around the corner. It’s the time of year when many companies throw an end-of-summer employee picnic or fall outing – and holiday parties are in the planning stages.

Did you know that much of the costs associated with these outings may be tax deductible?

Interestingly, the expense of providing recreational or social activities is deductible, say the CPAs at Teipen Selanders Poynter & Ayres, even though “regular business meals” are only 50% deductible. Just be sure that the benefit is for the benefit of the entire company and not just highly compensated employees.

A highly compensated employee is one who either owns a 10% share or more in the business or has received $120,000 or more in pay during the preceding year.

Can you deduct the cost involved to rent a facility?

In most cases, yes, say TSPA CPAs, as long as the costs are “within reason.”

What about employee gifts – are they deductible?

Those small gifts everyone at your outing receives, such as pens, desk sets, frames, and the like, are deductible. The IRS says an item that costs $4 or less, imprinted with your company logo and widely distributed to employees and guests, is deductible.

If your company gives larger gifts “in the course of your trade or business,” you can deduct all or part of the cost, but there are restrictions.

Here is what the IRS says about larger employee gifts:

  • There is a $25 per/person limit for the tax year
  • That $25 limit also applies in total to gifts to the employee’s spouse and family, as the gift is generally considered to be an indirect gift to the employee
  • If a husband and wife each own a company and each wish to give gifts to the same individual, the $25 limit applies to the spouses as a unit whether or not the businesses are separate or have an independent connection with the recipient
  • Indirect incidental costs such as engraving, packaging, insuring and mailing are generally not included in determining the cost of a gift for purposes of the $25 limit.

So, say TSPA CPAs, go ahead and plan your company outing and have fun! Just remember to keep accurate records for tax purposes and stay within IRS guidelines.