It’s that time of year again and many business owners with fat bottom lines, or even just with joy in their hearts, are getting ready to rinse and repeat what they have always done; buying tickets and food (perhaps adult beverages also) to celebrate and appreciate their work force. The new IRS rules generally allow deduction of the holiday party expense if it’s at the office, but the IRS has set new nondeductible guidelines for entertainment. It’s not clear, for instance, if you usually take you entire office to a holiday show, sporting event or concert, whether that part will still be deductible. More time and guidance will shake that all out, but at the moment it’s possible that it’s not, so you may want to change your behavior slightly as a business owner to protect yourself better. Anything that is reported as taxable income to the employee at the end of the year as wages or bonus or fringe benefits is still generally OK, since the IRS will collect the tax from them. However, anything the business has not sent on to the employee as income and has simply written off, might not fly under the new rules, so be careful.
Something many business owners have overlooked however is the possibility of renting their home to the business for the holiday party, or even for company trainings, meetings or retreats, as the S or C Corp can deduct rent for those uses. And, here is the important part: The new rules created by the IRS to deal with people offering homes or rooms on Airbnb and the like allow the income to be TAX FREE personally up to a limit of a certain number of days. THAT’S RIGHT…I, Mr. Business Owner, write a check from my company to me personally, record the deductible transaction properly, and then cash that check and owe NO FEDERAL INCOME TAX on those rent dollars received. Throw that big party, hire the entertainment and get a deduction! The company can still have it catered or buy the food.
Sound complicated? Don’t try to figure this all out by yourself when you can hire a tax planner and do the things you want to do all year long and get the deductions, as you learn the new rules from a professional.
PS: Invite them to the party also.