Many businesses are hosting holiday parties for employees this time of year. It’s a great way to reward your staff for their hard work and have a little fun. And you can probably deduct 100% of your 2017 party’s cost as a meal and entertainment (M&E) expense. Next year may be a different story.
The 100% deduction
For 2017, businesses generally are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible, including expenses:
1. For recreational or social activities for employees, such as holiday parties and summer picnics,
2. For food and beverages furnished at the workplace primarily for employees, and
3. That are excludable from employees’ income as de minimis fringe benefits.
There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.
Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.
If your company has substantial meal and entertainment expenses, you can reduce your 2017 tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.
Possible changes for 2018
It's possible that the M&E deduction for employee parties — along with deductions for many other M&E expenses — will be eliminated beginning in 2018 under the reconciled version of the Tax Cuts and Jobs Act. For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction when you file your 2017 return, please contact us.