The holidays can be a really fun time for your business! Oftentimes, there are holiday parties, gift-giving, gift-receiving, and lots of celebration! However, it can get confusing categorizing all of these holiday expenses and making sure you’re taking care of your business with these added expenses. So, we’ve put together a short guide to help you manage your accounting during this fun time of year! Keep reading to find out more.
Write Off Your Party
The number one tip we have for you is that your annual holiday party can be written off! The expenses are 100% deductible, but don’t get too crazy. Extravagant expenses can put the IRS on high alert. Additionally, don’t exclude anyone! Not only is it kind to include everyone but making the party exclusive can result in HR violations. Invite everyone! We all want to have a good time and enjoy the holidays together!
Inviting Clients to the Party Helps
Sometimes, people invite their clients, potential clients, other owners, or business associates to their holiday parties. This is an added expense that you can write off as well, but there are a couple of limitations. These added expenses are only 50% deductible, and a substantial business discussion must take place at the party. Keeping this in mind with your budget and all, consider inviting some of your clients or potential clients to your holiday parties!
The holidays are also a time of gift-giving, and gifts are another thing that you can write off to some extent. It depends on who the gift is for, so let’s talk about the different kinds of gifts and the limits to writing them off.
Gifts to a business or an individual
If you’re giving an individual a gift directly or indirectly, there’s a $25 limit. If you have the opportunity to give a gift to the company as a whole, you should because the limit goes up to $100. Both of these things can still be written off within the limit.
Limited Direct Costs
What it costs you to make a gift if not subject to the limits. For example, if you get a bracelet and want it engraved and shipped, the engraving and shipping are 100% deductible. However, the cost of the bracelet would be subject to the $25 limit.
Entertainment expenses like tickets for a sporting event or concert are 50% deductible. They’re not limited to the $25 limit. Therefore, for more expensive things like $250 tickets, classifying them as an entertainment expense is more beneficial.
Documenting is Important
Whether you’re giving away sports tickets or gifting a bracelet, you should document it. You need to keep track of the gift’s cost and a description of it, the date it was acquired, the purpose for the gift, and the business relationship with the taxpayer of the person receiving the gift.
Talk with Your Accountant
There are better ways to classify these expenses than even what we listed above. If you are going to be hosting holiday parties, inviting clients, and giving presents to both clients and employees call your accountant and ask them what’s the best way to document this to limit your tax liability and maximize your savings. There is plenty of case law documenting how much of these activities can be deductible through promotional expenses or benefits for employees! Getting ahead of this now will allow you to be better prepared for your income taxes in the year to come.
At BaCo Group we have automated tools we use with our clients that flag us of this activity and allow us to reach out to you directly to ensure that we are getting ahead of this with you and helping you run cleaner accounting for tax purposes in real-time.
The holidays are a great time of the year for celebrating and gift-giving, and it’s an added plus that you can write off all and/or some of the expenses! If you need help with your holiday expenses, contact BaCo Group today. Our CPAs and tax experts would love to meet with you to discuss your options this holiday season.
Published on Dec 14 @ 7:50 AM CDT