Deductibility of Lodging/Accommodations for a Holiday Party

[JessSBFP]

Hi,

I have a client whose LLC is hosting a holiday party for clients and employees. He wants to know if the cost of lodging/accommodations for the holiday party is tax-deductible for his business. I believe he would be able to deduct 50% of the clients' lodging expenses and 100% of the employee lodging expenses. Is this correct?

[TaxGuyBill]

I don't see how the lodging is part of a holiday party.  Offhand, I don't see the lodging as deductible at all (well, in most cases).

What is your reasoning that the lodging would be a business expense? 

Or it might need to be added to the employee's wages (which would then be a business expense).

[JessSBFP]

I guess I'm thinking of it in the same way as meals provided at a holiday party.

And the general rule in Publication 535 that 100% of certain lodging expenses provided to employees are deductible. What is unclear to me is if lodging expense related to a holiday party would fall under certain lodging expenses.

I could see it needing to be added to the employee's wages.

[qbteachmt]

I read a few articles for you. I like this one as a place to start from:

https://polstontax.com/holiday-party-deduction-guide/

In the past, when I worked for a high end architectural firm, we rented two pontoon boats and took all staff out on a large lake and toured some of our projects, as well as our competitors' and some under construction. This lake is 2-4 hours from all of our residences. We had lunch catered on an island, and hired two boat captains.

From there, we went to a lakefront conference center to which spouses/family had been invited, and some subcontractors and clients. There was a bit of "show and tell" and then the evening was the entertainment part.

Another sticky topic is gifts. The next day we gave out the bonuses and "achievement and safety awards." We had a high-end contractor who gives out western wear (think pricey hats and boots, gloves and belts), but the projects we worked on together were never less than multi-million $ log homes and clubhouses and "cabins." If nothing else, I always took home nice barware or some small electronic gadget.

Example: https://www.thebalancemoney.com/giving-employee-awards-know-the-tax-implications-398965

These articles are nice because it helps if you break down the costs and event stages, and treat each appropriately.

I hope that gives some perspective. Glad our economy is supporting these things, again.

[BobKamman]

The lodging might be necessary because you don't want them driving home until they are sober.  However, calling it a "holiday party" makes it fairly clear that this is not primarily for a business purpose, either for the customers or the employees.  Maybe the issue is whether the value has to be added to compensation.  If this is a New Years Eve party, should it go on the 2023 W-2, or 2024, or both?

[qbteachmt]

"If this is a New Years Eve party, should it go on the 2023 W-2, or 2024, or both?"

Never both, and technically, the next paycheck that covers the pay period in which the party falls.

"calling it a "holiday party" makes it fairly clear that this is not primarily for a business purpose"

Which is why you schedule the events to match their purpose, and the party is after the year end review and wrap up, any show and tell as to upcoming goals and projections, targets, etc. Do some business, show some graphs, then get to the fun. That's why it's called a Conference Center along with Resort or Spa or waterpark.

[JessSBFP]

Thank you! The articles don't really address lodging though. I am starting to think that because lodging is separate from the actual party, it probably isn't deductible.