If you like the post about deducting overtime meal 100%, you will love this post because I want to show you when you can deduct meal 100%.
Again, in general, if you take employees out for meeting, the business meal is 50% tax deductible. Is there any exception to take 100% against your taxable income?
The answer is YES!
Recreational Event / Outing
What does recreational event mean to you? You may picture it like picnic in a park, watching movies, bowling, employee birthday party or even going to Disneyland.
Yes, the above are all defined as recreational event for employees . Once the event meets the requirements by IRS, such recreational event expenses (entertainment and food) are 100% tax deductible.
So your question is how to meet the compliance of IRS for such expenses? I am happy to show you as follows.
This recreational event is primarily for employees
If the event is only for highly compensated employees or for owners who have more than 10% ownership, it will be failed to define as recreational event.
Primarily means 50%. If you have 2 employees who do not have ownership of your business, and they are not highly compensated, the recreational event you have with them satisfies this rule. It is because 2 out of 3 people are non-owner as well as not highly compensated, the ratio is over 50%.
Ordinary and Necessary?
This is the basic test to evaluate if such expenditure is ordinary and necessary to incur so as to have the motive to generate the profit in the future. If you think this party / event can boost the morale of the employees, it will meet this test.
Document it
As always, keeping receipts and writing the tax diary are very important to substantiate the business expenses. The tax diary should include information such as the names of the employees who attend the recreational event, the reason and the venue of the event.
If you can do the above steps properly, your company’s recreational event (including meal and drink!) are 100% tax deductible. Enjoy the fun and treat your employees well!
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