If you purchase and pass out Halloween candy as an individual, you cannot deduct it on your business tax return. Likewise, expenses related to Halloween parties do not qualify for deductions. If you own a business, however, you can deduct candy you give out to advertise your business, provided you distribute it at a promotional event for your company or during a business meeting.
You can create or buy candy wrappers that include your business contact information and company slogan and wrap them around the candy bars you give out at Halloween. Alternatively, you can create Halloween goody bags that contain candy and your business card, flyer, brochure or a magnet advertising your business. In either case, you can deduct the Halloween candy you give out as an advertising expense.
You can deduct at least a portion of your expenses for Halloween candy you give out at parties if you use the events to conduct business. For example, this will typically prove a valid deduction if you combine your Halloween party with an open house and spend some of the time promoting your business. Likewise, you can deduct candy expenses if you invite current clients or business associates and discuss your business. The Internal Revenue Service (IRS) does not specify how much time you must spend discussing the business to claim a deduction.
Though you can typically deduct entertainment and advertisement-related expenses, including Halloween candy, each tax agency may have different rules for acceptable deductions and deduction amounts. According to the Small Business Administration (SBA), state and local tax laws can differ from federal tax laws, as can the allowable deductions. Check with each tax agency that has jurisdiction over your business as you plan your deductions. In addition to federal taxes, for example, you may also owe state and local business taxes. You must also keep accurate records of your expenses — which includes preserving all your receipts in case of an audit.
Tax deduction mistakes can prove costly, and in some cases could result in increased tax liability and financial penalties. Errors on your return could even lead to increased risk of an audit. Prepare yourself and avoid errors by consulting with a tax professional or hiring one to prepare your returns.