Writing off 100% Entertainment

As a business owner, you know how important it is to keep your employees happy. So, what if I told you regardless of whether it’s a meeting or an event, you can write off benefits for your employees?

Let’s say you have an all-day training for your employees at a hotel with food provided. Well, you’d get a 50% deduction on that since it falls under the category of meals.

On the other hand, say you treat your employees and their families to a local country club where they can play golf, tennis, swim, and enjoy all the fun activities a country club provides. You would get a 100% deduction.

There’s a BollitProof way for you to get a 100% deduction for an employee party and entertainment known as recreational Benefits for Employees.

Here are the types of events that qualify as “entertainment” for your 100% employee entertainment tax deduction according to the IRS:

  • Holiday parties
  • Annual picnics
  • Summer outings
  • Maintaining a swimming pool, a baseball diamond, a bowling-alley, or a golf course

As you can tell, the IRS makes it clear on the types of entertainment that would qualify for 100% deduction.

Nerd Language – the tax code states: “Expenses for recreational social or similar activities including facilities, therefore, primarily for the benefit of employees qualify for 100% deductions.”

Remember, if you are utilizing our BollitProof strategies you probably have kids and family members who are considered employees on payroll. If not, go read our Kids on Payroll article so you can utilize this strategy.

What would this look like for your business on a broader scope?

Let’s say a company rents a boat 20 times a year at $1,000 a trip for their employees to enjoy. That’s going to create a $20,000 deduction. The deduction would work because it’s primarily used for the employees.

I want to tell you about a famous case regarding this tax deduction topic.

The American Business Service Corporation rented power boats 41 times a year at the cost of $1,000 a day for day long cruise recreation activities for their employees. They had around 100 employees but the boat could accommodate 30 guests per time. All employees, including owners and managers were eligible to take the cruise.

  • The court allowed the full $41,000 deduction a year for the cruises for the following reasons:
  • The cruise was primarily for the employees
  • They didn’t discriminate (meaning all employees could go on the cruise, not just the top tiere owners)
  • They documented who went on the cruise and when they went on the cruise
  • They passed the ordinary and necessary business purpose test

What does that mean for you as a business owner? Obviously, this idea benefits your employees but does it benefit you too?

Absolutely.

It just needs to be primarily for the employees.

Here is what the tax law specifically says:

The law requires the entertainment expense be primarily for the benefit of the employees other than a tainted group.

You might be wondering what a tainted group is considered.

  • A tainted group is:
  • A highly compensated employee (an employee that’s paid more than $125,000 in 2019)
  • Anyone, including you, who owns at least 10% interest in your business
  • Any member of a family who’s a 10% owner
  • Brothers and sisters (including half-brothers and half-sisters)
  • Spouses
  • Ancestors (parents and grandparents)
  • Descendants (children, grandchildren, adopted children)

Just keep in mind, if you’re a business owner you will be considered a part of this tainted group. So, all you need to do is make sure there are other employees. Plain and simple.

This strategy is designed to be more than 50% use toward the employees. But how do you make sure you’ve reached that 50% use?

Shockingly, the IRS actually gives us a tip on this.

The IRS says you can measure primary use by days of use, time of use, number of employees or any other reasonable benefit.

For a 100% deduction, this is something to keep in mind. Not to mention, it’ll boost morale, create loyalty, retention and recruitment for your employees.

Overall, this is a BollitProof win-win for you and those who work for you.