Key Takeaways

• Company-wide holiday parties for employees are generally 100% deductible, as long as they’re not exclusive to owners or managers.
   
• Meals with clients are typically only 50% deductible, and entertainment remains 0% deductible.
   
• Employee gifts can be tax-free if they qualify as “de minimis” benefits, but cash and gift cards are always taxable.
   
• Client gifts are capped at a $25 annual deduction per person, with specific exceptions for branded, low-value promo items.

 

Questions that might’ve been on your mind recently:

Where should we have the company holiday party?

Does the wreath I picked up at Costco for my business’s front door count as a business expense?

Which is why today, I want to break down what holiday festivities mean for your taxes and where you can lock in deductions. 

 

Is my company’s holiday party tax-deductible?

A true “company-wide” event (one where all employees are invited) is generally eligible for a 100% deduction. But there are two big conditions:

1. The party must be primarily for employees. Employees’ spouses/family are included as well. But if the event centers around owners, executives, or only a select group of higher-ups, the deduction evaporates.

2. The event cannot discriminate in favor of highly compensated staff. In other words, everyone from your office manager to your warehouse team needs to be invited.

If you meet those two criteria, the whole ordeal (food, band, décor, venue rental, even valet parking) can fall under the 100% deduction umbrella.

Now, if a guest is a client, prospect, vendor, or independent contractor, their meal component (if separately stated) is 50% deductible.

So, if you invite a handful of these assorted guests to your holiday event, you have to allocate event costs among:

• 100% deductible (employees)
• 50% deductible (meals for clients, associates, or 1099 workers)
• 0% deductible (any entertainment portion for non-employees)

(Most business owners avoid mixed-guest parties for this exact reason. The allocation process becomes a big hassle.)

 

What expenses can I include when deducting my company holiday party?

If your event qualifies for the 100% employee-party deduction, you can generally include:

– Food and beverages
– Alcohol
– Catering staff
– Venue rental
– Décor and invitations
– Music or entertainment
– Parking or transportation
– Security
– Event-planning fees

If it’s directly tied to the party, it probably counts.

 

Are employee gifts tax-free?

Holiday gifts to employees fall under one of two categories:

1. “De minimis” gifts: These are small, occasional items so minor that tracking them would be unreasonable. Like a modest gift basket, a branded mug or sweatshirt, or small-value snacks or treats

These are 100% deductible to the business and not taxable to your employee.

2. Cash or cash-equivalent gifts: This includes cash, checks, Visa/Mastercard gift cards, store gift cards, and anything that can be exchanged for cash-value goods.

These must be treated as taxable wages, run through payroll, and included on the employee’s W-2. 

Basically, if the gift feels like pay, the IRS will tax it like pay.

 

Are business gifts to clients tax-deductible?

The IRS enforces a $25-per-recipient-per-year limit on client gifts. So, if you give a client a $40 gift basket, only $25 of that is deductible.

There is an exception here: Promo items costing $4 or less with your logo (pens, mugs, branded ornaments, etc.) do not count toward the $25 limit, as long as they are distributed widely.

 

Are business decorations and office holiday enhancements deductible?

Generally, yes.

Holiday décor that enhances your workspace (a tree for the lobby, garlands for the reception desk, lights for your storefront) typically qualifies as an ordinary and necessary business expense.

But if decorations spill into personal use (for example, you bring them home afterward), deductions may need to be reduced.

 

A final word

If you’re unsure how your plans fit into the IRS rulebook, that’s exactly why I’m here. Before you finalize your party budget or start ordering gifts, let’s take a few minutes to map out what’s deductible and what’s taxable:

calendly.com/eco-tax-free-consultation/meeting

 

FAQs

“Can I deduct a team dinner if we don’t host a full holiday party this year?”

Generally, yes, but it’s treated as a 50% deductible business meal, not a 100% deductible recreational event.

“Are holiday bonuses deductible?”

Yes, but they must be run through payroll and are fully taxable to employees.

“Can I deduct gifts I buy for my own family if they work for the business?”

Only if the gift is truly for the employee’s role. And even then, cash or gift cards are still taxable.

“Can I donate leftover party food or items to charity and deduct it?”

You can, but only certain types of unused goods are deductible. Labor and time are not.

“What expenses can I deduct if I host a virtual holiday party?”

Food delivered to employees’ homes for a virtual celebration may still qualify. The IRS hasn’t formally ruled, but current guidance supports it when the intent matches an employee recreation event.

“Do I need to keep a guest list to secure deductions on holiday party expenses?”

Yes. It’s often the difference between keeping and losing the deduction during an audit.