Kostecke CPA

Travel & Entertainment: Is the Company Picnic Tax Deductible?

Self-Employment TaxCompany picnics, parties and other events can be tax deductible, provided you have good documentation and understanding of the rules for tax deductible expenses.

Companies throw parties for different reasons. Sometimes it is primarily as a morale booster for employees or as a team building exercise. Sometimes spouses and family are invited and sometimes they are not. Customers, clients and other business associates are sometimes invited to company parties and events as well. Companies sometimes host parties just for customers, business associates and the employees who interact with them.

In order to determine how picnic/party/event expenses need to be treated, you have to determine what the purpose of the event is and who actually attends.  Do you know what you can deduct from your taxes?

What is deductible?

  • Costs for your employees are 100% deductible
  • Costs for the general public to attend (i.e., a blanket invitation to the community) are 100% deductible
  • Costs for spouses, plus-ones and family members of employees are 100% deductible
  • Costs of business associates and customers attending are either not deductible at all or 50% deductible
  • Costs of friends who attend are not deductible

Parties that include business associates and/or customers and clients are only deductible if there is a short business presentation or announcement at the party. It helps to document this presentation in the agenda or invitation for the party. Minus this formal announcement, attendees who are not employees or associated with an employee are considered to be at the party as friends and therefore not deductible.

You should have a method of checking in attendees to your company event, especially if there will be a mixture of employees and others at the event. This could be as simple as writing down who was there, for small gatherings, or as complicated as having name tags with electronically collectible information for very large events. Either way, you will have a record of who was at the event and their relationship to the company.

For most picnics and parties, it is easiest to divide up the average cost per attendee and allocate it to each group (employees and their plus-ones, business associates, friends) pro rata. However, if you have direct cost information especially for major costs, use it accordingly.

What if you have your event at the country club? Can you deduct your membership fees? The answer is no,  but you can deduct any costs directly associated with the party itself.

Are the costs of an event taxable to the employee?

They can be if the event is only open to certain employees as a reward, involves travel and the cost is high. Otherwise, parties, picnics and the like for employees are considered de minimus benefits that are not taxable. If you include costs of the event in the employee’s W-2 for an event that is really an incentive award, you can take all of the cost as a business expense.

Read more on this topic

Search for Pub. 463 at irs.gov under IRS Forms and Publications.

 
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