Most business owners think the entertainment deduction is dead. The tax law changed, the fun stopped, and now every party is a waste of money, right? Not even close. The entertainment deduction is alive and well inside one of my favorite strategies. Meet these three criteria and you have an event that doubles as a team builder and a 100 percent write off.
- It must promote employee well being, morale, or team building
This is not about impressing the owners. It is about investing in your people. Team culture, camaraderie, and a chance to connect outside the daily grind all count as valid business purposes.
- It cannot be “lavish” or extravagant
The IRS is not going to buy your private island retreat with lobster towers and fireworks. A bowling alley, a rented room at a restaurant, a simple resort event, a casino night with fake money, an escape room. All of that can qualify as reasonable for the size and profitability of your company.
- It must be primarily for employees, not owners
You, as the owner, get to be there and enjoy it. You just can’t build the whole thing around you and your inner circle. The majority of attendees need to be employees. Spouses can come. A limited number of key clients can attend. The headcount still needs to skew clearly toward staff.
If you hit those three points and document what you did, you are in the 100 percent deduction zone for both the food and the entertainment.
The Entertainment Deduction Isn’t Dead
Back in the day, you could write off 50 percent of most entertainment. Ball games, concerts, client events. When the Tax Cuts and Jobs Act hit and most of that went away, people heard “entertainment is no longer deductible” and just stopped trying. But the reality is more nuanced.
Pure entertainment with clients or owners is gone. Company events that are primarily for employees are still very much in play. In fact, when you set them up correctly, you can write off 100 percent of the food and 100 percent of the entertainment. The trick is to step out of the “let’s just throw a party” mindset and into a “this is a real company event with purpose” mindset.
Real World Examples That Work
1. Bowling and burgers at lunch.
At one of my companies, we did a Christmas lunch at the local bowling alley. Employees only. No spouses. During work hours. We reserved lanes, ordered food, recognized team members, handed out awards, and talked about the year we just finished. Bowling and food are both entertainment and meals. Because this was a structured company event for employees with a clear business purpose, the expenses were 100 percent deductible.
2. Resort night with awards and casino games.
At Directed IRA, we did a more formal evening event at a resort. People dressed up, we had dinner, then a mock casino night with play money and prizes. In the middle of all the fun, we stopped for leadership recognition, reviewed wins, and laid out the vision for the coming year. Once again, employees were the primary focus. The event built culture, morale, and loyalty. The food and entertainment were ordinary and reasonable for the business: a 100 percent deduction.
What Stays Stuck At 50 Percent
Not every bite of food in your business can magically hit the 100 percent bucket. Some items are still capped at 50 percent. Here are a few common ones:
- Friday happy hour at the bar with the team
- Lunch with one or two employees to talk shop
- Meals with clients outside of a structured event
- Snacks and casual food in the office kitchen
These can still be valid business meals. You just only get a 50 percent deduction. That is why it pays to carve out a few bigger events each year with a clear agenda and make those your fully deductible “company parties.”
Turn Your Party Into A Real Meeting On Paper
If you want the write off, treat the event like a real meeting. That doesn’t kill the fun, it just keeps you safe.
- Prepare a simple agenda. Welcome, business update, awards, culture items, announcements, then social time.
- Include some real business content. A short talk about company goals, values, or results. Recognition for top performers. A quick review of wins and plans.
- Take minutes. It can be a simple one page summary of what you covered and who attended.
- Keep the records. Save invoices, receipts, contracts with venues, and your minutes in your tax file.
You do not have to lecture for two hours. Ten to thirty minutes of structured content inside a two or three hour event is plenty.
Using Your Home And The Augusta Rule
If you want to take this to the next level, consider using your home as the venue and layering in the Augusta Rule. Your company can rent your home for the event at a fair market rate, the business takes a legitimate rent deduction, and you receive that rental income tax free under the fourteen day rule for personal residences.
You still get to deduct the food, entertainment, and other event costs inside the company. Just make sure the rent you charge is reasonable for a similar house or event space in your area, and document how you arrived at the number.
If you already host events at your home and you are not taking this deduction, you are leaving money on the table.
Don't Forget The Basics
A few final housekeeping items that make or break this strategy.
- Pay for everything from the business account. Venue, food, entertainment, travel. Do not mix personal cards and then try to clean it up later.
- Track who attends. Employees, spouses, and any clients or guests.
- Keep it aligned with your culture. A bowling alley might be perfect for one team and a disaster for another. Pick events people actually enjoy.
- Do it more than once. The tax law does not limit you to one party. Holiday parties, summer picnics, anniversary events. You can hold several as long as you stay within the rules.
When you combine smart tax planning with genuine investment in your team, this becomes one of the most powerful and underrated tools in your playbook.
The Bottom Line
You don't have to choose between “do something fun for the team” and “be smart with taxes.” With a little structure, your company party can build culture, recognize your people, and still be a 100 percent write-off. Most accountants barely mention this because it's not their world. They plug numbers into the software and move on.
If you want to make sure you are using this strategy correctly along with other dining, travel, and Augusta Rule opportunities, my team at KKOS Lawyers can walk you through it. We will review your current structure, clean up any weak spots, and build a plan that lets you enjoy the party and sleep at night. This is how you stop guessing, lock in legitimate deductions, and use the tax law the way business owners are supposed to.
