If you host a small get-together just for select employees, customers or other invited guests, the IRS will consider your event to be “entertainment” and not “advertising,” says Phillip Ash, a Washington, DC-area CPA and publisher of Small Business Tax Strategies. And the difference between those two words is huge in tax terms.
Your business is only allowed to deduct 50 percent of entertainment costs. But advertising costs are 100 percent tax deductible. Thus, if you plan to host a get-together with only a few invited guests, by expanding your guest list to include the entire workforce — and then some — your business will be able to deduct the full cost, rather than just half.
And while you’re at it, beware of other tax-related pitfalls. For example, giving employees cash or gifts (in lieu of a party) can have negative tax consequences to your business and well as your employees since those items are reportable as income to the employee, says Kelly Phillips Erb, a business tax attorney who heads the The Erb Law Firm in Philadelphia.
IRS Publication 463, available at IRS.gov, has all the gory details.
And if you’re looking for ideas and resources to pull together your big business-related bash, check out BizBash, a great event and meeting planner’s source for venues, caterers, rentals, entertainment, decor, banquet halls, AV production, and lots more.
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