10 Halloween Tax Facts Every CPA Should Know

Halloween is more than just spooky decorations and sweet treats. It’s also a season when clients have many questions about what’s deductible and what’s simply holiday fun.

Each October, CPAs find themselves advising on costumes, candy, pumpkin sales, and charitable donations, topics that mix festive cheer with complex tax rules.

Sharing genuine, IRS-backed Halloween tax facts helps educate clients, protect them from costly mistakes, and showcase your expertise during this lively time of year.

Below are ten essential tax facts you can confidently use to help clients navigate this season with clarity and confidence.

1. Most People Cannot Deduct Their Halloween Costume

Most taxpayers cannot deduct Halloween costumes because they are considered personal expenses under Internal Revenue Code §262. Personal, living, and family costs are disallowed unless expressly authorized by tax law.

However, there is an exception for theatrical or work-related clothing that is not suitable for everyday wear and is required for income-producing activities. The IRS explicitly allows deductions for costumes and accessories that meet the following conditions:

• They are required as part of a trade or business.

• They are not adaptable to general use outside of work.

• They are primarily and exclusively used for performance or business purposes.

Court case example: In Pevsner v. Commissioner, the taxpayer sought to deduct expensive Yves Saint Laurent wardrobes claimed as business attire. The court rejected the claim because the clothing was adaptable to personal wear, highlighting the critical distinction between costumes strictly for work and items wearable in daily life.

Why this matters: Clients frequently ask if costumes for work parties, themed office days, or holiday events qualify as deductible business expenses. This fact clarifies the boundary and helps avoid disallowance and audits stemming from overbroad deductions.

2. Costumes Can Be Deductible If They Are Part of Your Business

Costumes may be deductible as ordinary and necessary business expenses under Internal Revenue Code §162 if they meet three criteria:

1. The costume is required for your performance or income-producing activity.

2. It is not suitable for street wear or general use outside of business.

3. It is used primarily and exclusively for business purposes.

Example: A professional haunted house actor or a YouTube content creator who regularly uses costumes in monetized videos can deduct the costs if properly documented.

Compliance tip: Keep detailed receipts, photographs, contracts, and any other records that link costume expenses directly to your business income to substantiate the deduction during an IRS audit.

3. Candy Handed Out at Home Is Not Deductible

Halloween candy given out at your home is considered a personal expense and is not deductible under Internal Revenue Code §262. The IRS excludes personal, living, and family expenses from deductions unless explicitly authorized otherwise.

Even though handing out candy is a beloved community tradition, the cost of candy placed on a porch or driveway is viewed as a nondeductible personal gift, regardless of generosity.

Why it matters: Clients sometimes mistakenly believe candy costs at home can be deducted. Clarifying this can prevent confusion and erroneous tax filings.

Compliance reminder: Only candy given for qualified business purposes, such as promotional giveaways to customers, is potentially deductible as a business expense, not candy distributed at a personal residence.

4. Candy for Customers at Your Business May Be Deductible

Candy and decorations given out to customers or used in business promotions can qualify as ordinary and necessary business expenses under Internal Revenue Code §162 and IRS Publication 535.

This means candy handed out at a storefront, used for customer appreciation events, or offered during a community promotion can be deductible when it serves a clear business purpose.

Important note: Business candy is generally 50% deductible under the meals and entertainment rules. However, when it is made available to the general public, the 50% limitation does not apply. Decorations, on the other hand, are not subject to the meals limit and are typically fully deductible as marketing or business property expenses.

Clear documentation is essential to support these deductions. Keep photos of your displays, receipts for candy and decorations, and notes describing the business purpose or promotional event.

Business tip: Maintaining detailed records showing that these expenses directly relate to customer goodwill, marketing, or advertising strengthens your deduction position during any audit.

5. Donating Leftover Candy Can Be Deductible

Donations of leftover candy to qualified 501(c)(3) organizations may be deductible if you itemize your tax return. The deduction is generally based on the fair market value of the donated property, as outlined in IRS Publication 561.

Key requirements include:

• Obtaining a written acknowledgment from the charity documenting the donation.

• Verifying that the organization is a qualified public charity as defined by the IRS.

• Keeping detailed records of the items donated, including types and quantities.

Important note: Donations made to neighborhood groups, individuals, or non-qualified organizations do not qualify for a tax deduction.

Practical tip: Ensure donors receive a proper receipt and confirm the charity’s IRS status before claiming the deduction. This documentation can prove crucial in an audit.

6. Pumpkins Have a Split Personality at the Sales Tax Counter

Pumpkins can be either tax-exempt or taxable depending on their intended use. Many states classify pumpkins sold for food purposes, such as pies or cooking, as grocery items that are exempt from sales tax. Conversely, pumpkins sold for decoration or carving purposes are typically treated as taxable tangible personal property.

Example: In New York, decorative pumpkins and gourds are subject to sales tax, while pumpkins sold specifically for food use are exempt.

Business takeaway: Encourage clients who sell seasonal produce or decorations to accurately classify pumpkin sales to comply with state sales tax laws, especially during the busy Halloween season.

7. Candy Is Not Taxed the Same Everywhere

Candy taxation rules vary significantly by state. Under the Streamlined Sales and Use Tax Agreement (SSUTA), candy that contains flour is often excluded from the definition of "candy" for tax purposes. This means products like Twix or Kit Kat, which contain flour, may be exempt from sales tax in 23 states, while typical candy bars like Reese’s or Snickers are subject to tax.

• Many states consider candy a taxable item, but definitions and exemptions differ widely.

• Some states fully exempt candy as part of food and food ingredients, while others tax it at general merchandise rates.

• Vending machine sales, pricing thresholds, and local tax rates can further affect taxation.

Tip for multistate sellers: Because state definitions of what qualifies as candy differ, it is essential to review the sales tax laws in every state where you operate. This ensures accurate compliance and correct pricing during the Halloween season and beyond.

8. Running a Haunted House Means Deductible Scares

Operating a haunted house can be a legitimate business, and most operational expenses qualify as deductible business expenses under Internal Revenue Code §162.

Costs such as props, fog machines, actor costumes, temporary structures, and advertising are generally ordinary and necessary expenses that can be deducted.

• IRS advice: Expenses not directly connected to clear business purposes, such as purely entertainment-related costs, may be subject to limitations under §274.

• Compliance tip: Keep thorough records, receipts, invoices, and categorize expenses properly to ensure robust documentation in case of IRS inquiry.

Example: A seasonal haunted house operator can deduct the costs of renting fog machines, hiring actors in costumes, advertising the event, and buying props, since all directly support the business operations.

9. The Only Real Ghost the IRS Warns About Is the “Ghost Preparer”

“Ghost preparers” are tax return preparers who prepare returns for a fee but do not sign them or include a valid Preparer Tax Identification Number (PTIN). The IRS issues annual warnings about such preparers because they often commit fraud, file incorrect returns, or divert refunds unfairly.

Ghost preparers leave taxpayers vulnerable to penalties, audits, and fraud investigations, even if the taxpayer is unaware of the misconduct.

How to protect yourself:

• Always verify your preparer has a current PTIN.

• Request and review a signed copy of your tax return before filing.

• Avoid preparers who demand cash-only payments or refuse to sign returns.

Choosing reputable preparers and verifying their credentials is a small but crucial step to prevent being haunted by tax preparer scams.

10. Fake Charities Are on the IRS Dirty Dozen List

Fake charities are a recurring item on the IRS’s Dirty Dozen list of tax scams, especially prevalent during holiday seasons when generosity peaks. Fraudsters create bogus organizations, often with names similar to legitimate charities, to trick donors into giving money or personal information that is then exploited or stolen.

• Only donations made to qualified 501(c)(3) organizations are tax-deductible.

• Taxpayers should always verify a charity’s tax-exempt status using the IRS Tax-Exempt Organization Search tool before making contributions.

Donations to unqualified groups, online fundraisers without proper credentials, or social media campaigns should be approached with extreme caution as these are not deductible and pose identity theft risks.

Why it matters: Awareness of this scam protects donors from fraud and ensures only legitimate charitable giving is claimed for tax deductions.

Quick Reference: Top Halloween Tax Takeaways

• Costumes are generally personal, non-deductible expenses unless specifically business-required.

• Deductible costumes must be unsuitable for street wear and tied directly to business activities.

• Candy handed out at home is non-deductible; candy for business customers may qualify.

• Donated candy to qualified charities can be deducted with proper documentation.

• Pumpkin sales tax depends on use, as food pumpkins are often exempt while decorative pumpkins are taxable.

• Haunted house expenses are mostly deductible with good documentation.

• Beware “ghost preparers” and always verify PTIN credentials and get signed returns.

• Verify charity status before donating and avoid fake organizations.

Halloween Tax FAQs for CPAs

Can I deduct the cost of my Halloween costume for a company party?

No. Costumes worn for personal or social occasions, even work parties, are personal expenses and not deductible under IRS §262 unless the costume is required for your trade and unsuitable for everyday wear.

What documentation should I keep for costume deductions?

Keep purchase receipts, photos showing use in income-producing activities, contracts mandating costume use, and logs demonstrating exclusive business use.

Is candy given to customers always deductible?

Candy given for marketing or goodwill purposes at your business can be deducted under §162, provided you keep receipts and document the promotional event.

How do I check if a charity donation is deductible?

Use the IRS Tax-Exempt Organization Search tool or Bizora's Research Assistant to verify the charity’s 501(c)(3) status before donating.

Can running a haunted house be a full-time business?

Yes. Expenses related to props, actors, advertising, and facility costs can be deducted if the operation is a legitimate business with proper records.

What’s Next?

This Halloween, use these facts to educate clients, enhance your newsletters, and create engaging social media content that highlights your expertise. Seasonal tax topics like these make complex IRS rules accessible while driving meaningful client conversations.

Boost your practice with Bizora, the trusted, citation-backed tax intelligence that keeps you ahead of IRS changes, seasonal updates, and compliance challenges.