Throw Parties to Save Money
As a small business owner, throwing parties for your employees may not be your top priority, even though it could be great for morale. However there are tax benefits to celebrating the hard work your employees contribute.
You probably already know the general tax rule that 50% of business meals/entertainment is deductible–with the other 50% not saving any income tax. However, all expenses which an employer pays for “recreational, social or similar activities PRIMARILY FOR THE BENEFIT OF EMPLOYEES” is 100% deductible as an “ordinary and necessary business expense”. This includes employee parties, outings, cookouts, picnics, teambuilding events, golf outings and even cruises.
Many small businesses are missing out on this deduction because they have only a single account to which they post their expenses for “business meals and entertainment”. When it comes time to prepare taxes, their CPA deducts just 50% of these expenses according to the general tax rule. Avoid this problem by setting up two separate accounts to track your business entertainment expenses separately for employee functions (100% deductible) and non-employee entertainment (only 50% deductible).