IRS Publication 535: Are Holiday Office Parties Deductible?

A holiday office party isn’t just for traditional, 9-5 employees. You may want to throw one for your small business. I’m sure you wonder “are holiday office parties deductible?” Let’s see what IRS Publication 535 has to say.

When Are Holiday Office Parties Deductible?

I’m sure you’ve been to holiday office parties with employees, their spouses and even customers of the business. Yet, business owners want to carefully plan their guest list. This determines whether those expenses are 100 percent deductible or 50 percent deductible.

IRS Publication 535 makes an exception to the standard 50 percent rule for entertainment expenses . This applies to company-wide holiday party or picnic.

The party expenses you incur as a business owner are 100 percent deductible. This is as long as the event is held primarily for the benefit of employees (including their spouses) who are not highly compensated.

No matter the size of your business, you’ll benefit from having a holiday party that invites the majority of your organization.

How Are Non-Employee Holiday Office Parties Treated?

You can deduct 50 percent of the expenses if the party includes non-employees related to your business. This includes customers, prospective clients or any other business-related associates. You must be able to show that your non-employee party was conducted in association with your business.

Lastly, if your holiday bash features employees and non-employee business associates, you must divide your deductible expenses into categories. You may deduct 100 percent of the costs attributed to employees but only 50 percent for non-employee associates.

It is more straightforward for the purposes of this holiday tax deduction to conduct employee and non-employee parties separately.

Make sure you document and classify the guest list for your holiday party. You should also keep diligent records of your business expenses.