One of the questions we hear a lot is along the lines of, “Can I write-off (insert team building event or social activity here) for my staff?” For example, “I’d like to take my staff on a cruise, can I write this off through the practice?”
Firm events include recreational or social activities done primarily (over 50%) for the benefit of employees. The employee benefit allows the related expense to be deducted in full. Owners and highly compensated employees may participate, but they should not be the primary beneficiary. As an example, this would include a deduction for the “office picnic” or “holiday parties.” The costs for these events, as well as lodging, a reasonable per diem, and directly related domestic travel for employees (not spouses or dependents, unless with a business purpose), can still be deducted at 100%. Keep in mind that the event should maintain the appearance of a company event with a business purpose (improving company culture and employee morale).
You must document your 100% deductible employee entertainment expenses, just as you must document other expenses. It’s important to write down the business reason for the expense. For example, if it is an event to improve morale and loyalty, write that down. If it is an event to celebrate an office milestone, write that down.
To summarize, the two main keys to this deduction are:
- The event must benefit your regular, rank and file, employees. The primary beneficiary of the event cannot be the owners and the highly compensated employees (paid more than $150,000 per year).
- Make sure to document the business purpose, who is attending and how it benefits your regular employees, and how it is improving the culture, morale, etc. Try to document that this expense is necessary.
Finally, in your chart of accounts (coding the expense), it is important to categorize these expenses as “Employee Benefits” otherwise, you might lose out on part of the deduction if instead the expenses were categorized as Meals (only 50% deductible) or Entertainment (0% deductible).
As always, if you have any questions specific to your practice, please reach out to your client manager and we can discuss your situation, the documentation, and the deductibility of your event.