Employee Recreations and Parties

You should have a party with your staff and deduct 100% of the cost when you understand the rules. 

According to the IRS, two forms of entertainment are eligible for the entire employee entertainment tax deduction: 

The IRS emphasizes that the two forms they specify are only examples and that other forms of entertainment might also be eligible for the full entertainment deduction. “Expenses for leisure, social, or related events (including services therefor) solely for the benefit of employees,” according to the tax code, are eligible for a 100 percent deduction.

Who Are Considered The Employees?

Entertainment expenses must be solely for the gain of employees who are not in a "tainted group," according to the law. The tainted group consists of 

• highly compensated employees (those paid more than $130,000 in 2021); 
  
• anybody, including you, who owns at least a 10% interest in your business (this is referred to as a "10% owner")
  
• or any family members of 10% owners, such as brothers and sisters (including half-brothers and half-sisters); spouses; ancestors (parents, grandparents, etc.); and lineal descendants (children, grandchildren, etc., including adoptees).
  

You are a member of the tainted group as a company owner. That isn't a significant issue. All you have to do is make sure that drinking with the workers is solely for their good.

"More Than 50%" is what "Primary" means.


More than 50%" is what the words "primary" and "primarily" indicate.  This means that the untainted group of workers must account for more than 50% of the use of the entertainment venue.

Tip: Primary has various measurement techniques. 

There are several possibilities for employee entertainment. Please contact us if you'd like to explore this further.