Holiday Party Tax-deductible?? Taxes

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Three ways to make a holiday party tax-deductible - MarketWatch

NEW YORK (MarketWatch) — If all the talk about tax policies has you worried, you might look to your own holiday party for a little tax break.Let’s face it: parties can be downright expensive, especially if you add a little entertainment.But whether you’re a homemaker, a business owner trying to expand your reach, or someone who just wants to spread a little good cheer, there are ways to make an event tax-deductible. Read how more Americans are in a giving mood again.Here are three ideas:1.Building the businessIf you have a party that’s primarily for clients or potential clients, the expenses are clearly deductible because its purpose is for business. That means everything from the food, the booze and even the entertainment are deductible, as long as it was a “reasonable” expense.“If you had 30 people and spent $20,000, that might be unreasonable,” said Vince Batyr, a certified public accountant in Tarrytown, N.Y. “In that case, you need to be ready to explain: ‘Hey, I had hedge-fund managers who are used to $800 bottles of wine.’ And that actually might be reasonable, whereas in another situation it might not.”Thinking about including some personal friends or family members to this “business” event? Batyr cautions against inviting too many. After all, the event’s primary purpose should be business. It’s safer to have significantly more than 50% who are business related. He also encourages clients to keep a list of who attended and the relationship in case you’re ever audited and your memory goes sour.Remember that business expenses that fall under “meals and entertainment” are only 50% deductible, whereas a marketing event for business purposes would be entirely deductible.“A town will have an open house for a retail store — that's clearly marketing and not 'meals and entertainment,’” Batyr said, “so there you can enjoy a 100% deduction.”Still, at a minimum, a $5,000 business-related party for someone in the 40% tax bracket (federal and state) results in an out-of-pocket cost of $4,000 for the party, at the 50% deduction rate (half of $5,000 is $2,500, and 40% of that adds up to $1,000 off your tax bill). Read about tax strategies for charitable giving.2. Do some goodWhat about those parties where guests are asked to bring a gift for a local charity? Read how one teenager’s nonprofit raised thousands of dollars for research.“At the end of the day, everything must pass a common test: is it reasonable?” Batyr said. “Are you disguising your party for deductible purposes or is this really legitimate?”He suggests making the charitable nature of the event a part of the party plan and clearly indicating to guests the purpose of the event. Coordinating with the charity organization in advance — and including their logo on your invitation — is also a way of avoiding any question about the event’s purpose.