Are Employee Appreciation Events Tax-Deductible?

Which Expenses Are Deductible? 

Deductible expenses include pretty much everything associated with the all-employee event.  The costs of food, beverages (including alcoholic ones), and venue rental are covered.  Entertainment appropriate for the event is also 100% deductible, such as a DJ or a magician for the kids. The scale of the entertainment should be on par with the size of both the event and your company. 

What Constitutes an Employee Appreciation Event?

Staff appreciation events can include holiday parties, summer picnics, wellness days, reward celebrations, baby and wedding showers, and retirement celebrations. Even team-building events and retreats are deductible. You just need to make sure that everyone on your team is invited and the event has a purpose for your company.

If you’re planning one of these events, The FruitGuys is a great resource for you. Not only can we deliver fruit and snacks for events, but we can also organize and facilitate them. We’re experts at hosting wellness get-togethers like fruit tastings, farmers markets, and meditation or yoga sessions. Learn more about our fun event options. 

How To Keep Your Event Tax-Deductible

Keep the following guidelines in mind when planning your event.

• Ensure your event is company-wide.  Favoring one department or group of employees may cost you the tax deduction if you’re audited.
• You can invite the family members and significant others of employees and maintain the 100% deduction.
• Parties that are only for highly compensated staff and/or owners with a 10% or greater interest in the business do not qualify for the tax deduction, even if you invite their families. For example, an event for a small family business where everyone is an employee and owner would not qualify. However, owners and highly compensated staff can be included in company-wide events for regular staff. 
• Do not invite clients and other business associates unless you keep meticulous records of what it costs you to have them there.  You can only claim a 50% deduction of the expenses incurred relating to their attendance.
• It is best to avoid lavish extravaganzas. According to CPA Richard Snow of Tax Office SF, “Tax deductible parties must meet an ‘ordinary and necessary’ test, and that is why they cannot be extravagant or lavish. The definition of these terms is not provided in the code, [so] one must use common sense. It’s not unusual for parties to be of high quality —some level of extravagance is necessary to distinguish the event.” This general limit is meant to ensure that the event is not a form of compensation.

Tips for Tax-Smart Recordkeeping

Maintaining good records is essential for showing the purpose and cost of your employee-focused event to the IRS. It’s also a good idea to speak to your company’s accountant to ensure your recordkeeping is sufficient. Here’s a list of tips to help you get started. 

• Document the date and location of the party or event.
• Write down the reason for the party. This can be quite simple, such as: “Annual picnic to create camaraderie.”
• Collect invoices and receipts for everything related to the event, including food, drinks, and venue rental if applicable.
• Maintain a list of everyone who attended the event, to show it was for all employees. This can be an RSVP list in an email or any other documentation that’s available.

In Conclusion

Special events are a critical component of keeping your employees happy and motivated at work. As an extra bonus, you can take advantage of the 100% tax deduction that the IRS allows.  Everyone wins! And if you’d like some extra help, The FruitGuys can even take the planning off your hands. 

*This article contains general information and should not be construed as professional tax, legal, or accounting advice. Consult your own accountant or tax advisor to determine the best approach for your situation.