Not too long ago we talked about meal expenses for small businesses. We also discussed how entertainment expenses are no longer deductible but what if we told you that if you do it the right way you can party with your employees and deduct 100% of the cost?
We get questions like this all of the time in our Free Facebook Group so here is a great article to touch on it.
How Is It Possible To Get a 100% Deduction For Entertainment?
If you take Billy Bob, your best client, out golfing, the cost of golf will give you no tax deduction. However, if you take your employees to the local country club, enjoy golf, lunch, dinner, etc it can be 100% deductible.
- Activities That Qualify for the 100% Employee Entertainment Tax Deduction
- “expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees” qualify for the 100 percent deduction.
- Examples: Holiday parties, annual picnics, and summer outings, maintaining a swimming pool, baseball diamond, bowling alley, or golf course.
- MUST be primarily for the benefit of employees other than a tainted group. A tainted group includes:
- Highly Compensated Employee (More than $130k in 2021)
- Anyone who owns at least 10% interest in the business
- Any member of the family of a 10% owner (children, spouses, siblings, parents, grandparents, etc.)
- As an owner you are part of the tainted group which is fine, you just need to make sure the partying is primarily for the benefit of the employees.
- Primarily = More Than 50%
- Be sure you hav clear and accurate documentation in your records to support this!
What Else Do I Need To Know?
Documentation, Documentation, Documentation
- You still need to meet the business requirement of ordinary and necessary. This should be relatively easy, improving employee morale or creating a fun and inviting culture.
- Documentation – You must keep good documentation regarding your employee entertainment expenses (just as you would any other business expense).
- Keep Receipts (Who/What/Where/When/Why)
- Document the business reason for the entertainment (annual retreat to boost employee morale, office party to celebrate new big client, etc.)
- Keep record of who the outing all benefits so that you can ensure you are under 50% from the “tainted group”.
- When coding in your bookkeeping, make sure you have a separate line item so it doesn’t get wrapped into any nondeductible items or 50% meals.
That is it! Now go out and take care of your employees and do a little partying this summer!
For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!
If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.