How to Host a Company Party & Save on Taxes!

Most business meals are only 50% deductible. And entertainment is generally not deductible at all. But thanks to an IRS carve-out, you can get a 100% deduction on certain company meals! That allows you to increase how much you save on taxes by bumping a 50% deduction up to a 100% deduction.

Under Internal Revenue Code section 274 (§274(e)(4) and (n)(2)(A)) the IRS exempts expenses for “recreational, social, or similar activities primarily for the benefit of employees” and pulls those costs out from under the 50% haircut. Translation: a company summer picnic or holiday party can be 100% deductible, including food, drinks, venue rental, decorations, and entertainment.

This is supported by Treasury Regulations (§1.274-12(c)(2)(iii)), which gives an example of an employer inviting all employees to a holiday party in a hotel ballroom with a buffet dinner and an open bar. The example concludes that the full cost of the party is deductible because it’s a social activity primarily benefiting non-highly compensated employees. This can apply to summer cookouts, ballgames, holiday dinners, etc., and there’s no limit on doing more than one a year as long as they stay occasional and reasonable.

Four Things to Keep Compliant:

1. Invite the whole team. The event has to primarily benefit rank-and-file employees. A party that is exclusively for the owners, or highly compensated employees, will not qualify. For 2026, a “highly compensated employee” is anyone owning more than 5% of the business or who earned more than $160,000 in the prior year.
2. Keep clients off the guest list. If the party is mostly customers and prospects, you could be in “entertainment” territory, and in that case the deduction could disappear.
3. Don’t go lavish. IRC §274 disallows amounts that are “lavish” or “extravagant.” While the IRS never defines these terms, this doesn’t mean that you can’t throw a nice party for your team. The goal is to keep things reasonable and in line with norms for your industry.
4. Document it. Keep copies of invitations, the guest list, and itemized receipts. Take lots of pictures at the event. These can go a long way in helping support the 100% deduction if anyone ever asks.

If you’re planning an employee event this year, let’s talk before you book it. A few decisions on the front end are the difference between a 100% write-off and a 50% one.