In order for an office party to be fully deductible, it must (first and foremost) be for employees. All employees must be invited to attend. The party must be only for employees and their immediate families in order to be 100% deductible. Inviting customers/clients changes the rules of the deduction.
A party for customers and potential future clients can only be deductible if the party serves a legitimate business purpose. This usually means a business dicussion of some sort must by on the party agenda. Even if this requirement is met only 50% of the general costs may be deducted.
Another limitation on parties is the expenses must not be for entertainment that is lavish or extravagant. These are nebulous terms and IRS publications don’t give much clarification. According to IRS publication 463 (Travel , entertainment, gift and car expenses)
“An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts.” Use your best judgment but extravagence at a company party for employees only could be viewed as compensation to employees.
When it comes down to record keeping, it is best to keep an accurate list of guests that attended and a possible timeline of the agenda if it was a party for clients.