Parties are a great way to celebrate the holidays and give your employees an opportunity to relax and mingle outside of the regular day-to-day activities in the office. As a business, the cost of these parties may be fully deductible on your business’s tax return.
There are, however, two important rules to remember when hosting a holiday party, or any employer-organized social event. These rules will ensure you can take advantage of these deductions.
1. Invite everyone
If you are hosting a staff party, it must be open to all employees for eligible event costs to be fully deductible. If the party is only open to a select group, you will not be able to fully deduct the expense and the per person cost will be seen as a taxable benefit to those who attended.
2. Keep it under $150 per person
The cost per employee must be less than $150, excluding transportation or overnight accommodations. If the cost exceeds $150 per person, the employee will incur a taxable benefit equal to the total cost per person, not just the cost that exceeds $150.
When calculating the cost per head, it is reasonable to assume that the cost per person is the cost of the event divided by those invited to attend.
For more information about employee gifts, anytime of the year, contact Koroll & Company today. We would be happy to consult with you regarding available options and how they will affect both you and your employees.
Example 1
You host a holiday party for all of your staff plus their spouses and children. The venue you chose is charging a flat rate of $80 per head. Because everyone in your company was invited and the cost per person was less than $150, the costs are deductible and there is no taxable employment benefit.
If, however, the cost per head was $170 per person, the employee would incur a taxable benefit of $170.
Example 2
You hosted a party for the management team and the cost per head was $80. Because it is not a company-wide event and only select individuals were invited, the expense would not be fully deductible as a party expense. You may, however, still be eligible for the 50% meals and entertainment deduction, in which half of the cost would be deductible.
If you have any questions about company events and the tax implications, contact our team of experts today. We would be more than happy to help.
