Daycare Tax Tips

Hosting a Holiday Party for Business Purposes?

The guest list affects your tax deduction

From working with family child care providers, I know that many of you host events where food and/or entertainment is provided.

The question is whether all of the costs associated with such parties are deductible on your income tax return.

The answer is, "It depends."

I'm not talking about parties you have for day care kids during business hours, which are always 100% deductible.

My comments concern evening and weekend gatherings for the kids and their families, in which case the guest list can determine how much of your costs are allowed on your tax return as an expense.

If you host a holiday party exclusively for your daycare families (and other invited guests), then the expenses fall into the meals and entertainment category. This means that only 50% of the costs are deductible. Therefore, only half the cost of whatever you buy for your party shows up on your tax return, meaning half the cost of food, decorations, paper goods, floral arrangements, party favors, bounce house rental, etc.

On the other hand, if you host the same holiday party, but open it to the general public, you can deduct 100% of your costs as advertising expense. As specified in Chapter 2 of IRS Publication 463, you are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community.

To ensure this tax treatment, document your efforts to spread the word about your open house. Save copies of any emails, flyers, Facebook postings, and other evidence showing that the general public was encouraged to attend. Have your guests sign in.

Posted on 2009-11-17 06:01:24