Deduction of Company-Sponsored Employee Gatherings
July 30, 2021
Summer and fall are vacations and holiday seasons for many. Business owners and managers take these opportunities to celebrate and show their appreciation to employees and customers by hosting company events. These events are expensive. Fortunately, the government is supportive of these activities and allows businesses to take a full tax deduction on the company event gathering.
The full tax deduction applies to the entire cost of the event, including the cost of food and beverages, entertainment, room rental, etc... However, to qualify for the full deduction, the event must be inclusive and for the benefit of the employees and not limited to owners or management only. For example, ABC, Inc. hosts a holiday party at a hotel, and the owner, officers, employees, and customers are invited. All costs for this event, including food, beverage, lodging, entertainment, etc… can be deducted 100% because the event is primarily for the benefit of the employees.
On the other hand, if only ABC, Inc.’s owner, officers, and managers are invited, the company cannot take a full deduction for all related costs; instead, deduction on food and beverage is limited to 50%, and zero deduction is allowed for entertainment. In addition, if any expense is deemed extravagant, it can be challenged by the tax authority and may not be deductible as an ordinary business expense; instead, the expense may be treated as an employee benefit or income to the invitees.
Therefore, the company should carefully plan and properly record the expenses of the company’s events to take full tax benefits and avoid the risk of having the costs of the meeting treated as income to the employees.