Tips for (Legally) Writing Off the Holidays

Gina Deveney
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A good office party is fun for the whole workforce. It livens the mood, lifts morale, and gives everybody a chance to see their coworkers in a new light. Of course, for the bookkeepers, the real fun comes months later when it's time to count up the tax deductions the party generated. Claiming tax deductions for an office party is just one of the accounting tips that a smart accountant will keep in mind during the holidays.

When it comes to holiday tax deductions, the office holiday party really is in a class by itself. When you're trying to decide how much of the expense to write off, you'll have to—honestly—answer a few questions about what sort of party it was. Most entertainment expenses are deductible if they're even tangentially related to your business. Giving away free appetizers to customers, for example, can be written off as an entertainment expense, as it's usually done as part of an effort to drum up business. Buying dinner for your vendors or colleagues is in the same category.

Unfortunately, the tax deductions you get for this class of expenses have dropped somewhat, from 80 percent deductible to 50 percent. That is to say, if your standard entertainment expenses for an evening come to $1,000, only $500 will be claimable on your return. If you're paying at the top marginal rate of 39.5 percent, this means your refund for the evening will come to just under $200; the rest is left uncovered, or may be covered by a different class of tax deductions, which is worth discussing with a professional accountant.

Office parties, on the other hand, have the pleasant quirk of being entirely deductible. That same $1,000, spent entertaining employees and their families will realize a return of nearly $400. The trick here is to avoid itemizing the expenses as simply "entertainment," and list them instead as "100 percent deductible entertainment." In the case of mixed parties, with employees, vendors, and customers present, try to figure out what fraction of the guest list consisted of employees and their families—that fraction is not subject to the 50 percent limitation of the rest of the tab.

The holidays are a time for fun and family. Planning ahead, applying the right accounting tips, and knowing just where the right tax deductions are to be found for this year's holiday expenses will help you plan to make next year's celebrations that much bigger and better. Of course, always remember that when you have any doubt about the legality or propriety of your proposed tax deductions, consult with a tax professional who can keep your holiday fun, safe, and profitable.



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