“Holiday parties, annual picnics, summer outings, and even employee meetings may qualify for a unique 100 percent tax deduction,” wrote Mark Battersby, a business, financial, and tax-related writer in a recent article in event trade publication InTents magazine. To qualify for the deduction, you must satisfy an “ordinary and necessary” business purpose test, which means that the expense is “appropriate and helpful” to the business. And what could be more appropriate and helpful than boosting employee morale and ensuring that your workers feel appreciated? By supporting your employees in this way, your event becomes 100-percent deductible.
There are details to watch out for: For example, entertainment expenses must be primarily for the benefit of employees other than people who fall into a certain group – employees who are paid above $110,000, who are a 10 percent owner, or any family members of a 10 percent owner.
Did you give out any branded gifts last year? Keychains, pens, and other goods — at an outdoor corporate holiday party, we handed out scarves branded with our client’s logo — can be considered business gifts, and because they’re branded they qualify as exceptions to the typical $25 limit for gift deductions. Branded items are deductible without limitation.
There are different rules for gift certificates, monetary awards, and bonuses, so consult your tax advisor regarding the nitty gritty details. Everything needs to be substantiated; be sure to have all the pertinent details (date of event, how many attendees) recorded in your files. And don’t forget to think about employee events for 2014!