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Guess what survived TCJA? Employee Recreation and Parties

4/2/2019

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​When you know the rules, you can party with your employees and deduct 100 percent of the cost. Interestingly, if you feed your employees during a training program, your deduction is only 50 percent. Make sure you know the rules that give you the 100 percent deduction for employee entertainment.
 
The IRS says that the following types of entertainment qualify for the 100 percent employee entertainment tax deduction:
 
  • Holiday parties, annual picnics, and summer outings
  • Maintaining a swimming pool, baseball diamond, bowling alley, or golf course
 
The IRS makes it clear that the above are examples and that other types of entertainment may also qualify for the 100 percent entertainment deduction. The tax code states that “expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees” qualify for the 100 percent deduction.
Who Are These Employees?
 
Technically, the law requires that the entertainment expenses be primarily for the benefit of employees other than a “tainted group.” The tainted group consists of

  • a highly compensated employee (an employee who is paid more than $125,000 in 2019);
  • anyone, including you, who owns at least a 10 percent interest in your business (this is called a “10 percent owner”); or
  • any member of the family of a 10 percent owner, i.e., brothers and sisters (including half brothers and half sisters); spouses; ancestors (parents, grandparents, etc.); and lineal descendants (children, grandchildren, etc., including adoptees).
 
As the business owner, you belong to the tainted group. That’s not a big deal. You just need to make sure that partying with the employees is primarily for the benefit of the employees.

“Primary” Means “More Than 50 Percent

Tax law describes the word "primary" or "primarily" as more than 50%.  For employee recreation, that means the untainted group of employees has to have more than 50% use of the entertainment facility, or in the case of a party, a majority of the attendees come from the untainted employee group.
Documentation Guidelines

You can gauge "primary" by the following:
​
  • days of use
  • time of use
  • number of employees
  • or any other reasonable method.
​Regardless of how you measure use, records that prove the uses are the keys to your deductions.

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    Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.

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    To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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    Author

    Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion.  Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.

    Keana founded this website and decided and created this blog page to offer a space for those seeking knowledge to understand, however not to be confused with advice or planning strategies.

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