I know you’ve been thinking about fitness for your employees and maybe a gym or other sports facility.
For your gym or other athletic facilities to be tax-deductible, they must be mostly for the benefit of your employees. This doesn’t include employees who are officers, shareholders, or other owners with a 10 percent or higher stake in the business, or employees who are highly paid.
For the 10 percent ownership test, the law says that employees own any interest owned by their brothers and sisters, spouses, ancestors (like their parents and grandparents), and lineal descendants (such as children and grandchildren).
The employees who made more than $150,000 the year before are in the highly compensated group.
The gym or other athletic facility must help rank-and-file employees more than it helps the business owner or highly paid employees. Think of this test of the primary benefit as a 51-49 test.
This means that the rank-and-file workers and their families have to use the building more often than the owner and the group with the highest pay.
Look only at the number of days you used the facility to see if you pass the 51–49 test.
Example: During the year, rank-and-file employees use the gym 235 times, while you, as the business owner, use it only 137 times. The gym gets a 51-49 score. The people who use it don’t have to pay taxes on it, and the business can write it off as an employee recreation facility.
We know that tax strategy for small businesses can be hard. Schedule your free tax consultation and find out more about how the ideas in the article can apply to your specific tax situation.