How to Feast on Tax Deductions for Company Picnicsby
With all that the Tax Cuts and Jobs Act (TCJA) cracks down on for entertainment deductions, a business can still write off the full cost of a company picnic or barbecue as long as certain requirements are met.
Previously, you could deduct 50 percent of the cost of entertainment that was directly-related-to or associated-with your business. Notably, the latter included expenses that immediately preceded or followed a substantial business meeting.
For instance, if you negotiated a contract in the morning and then treated the clients to a boat trip or golf outing in the afternoon, 50 percent of the qualified expenses were deductible – even drinks at the 19th hole or the fish bait. In addition, a business was allowed to deduct 100% of the cost of providing subsidized meals at a company cafeteria or similar eating facility.
For employees, the value of the fringe benefit was exempt from tax. Now the new law eliminates most deductions relating to business entertainment. Also, the 100 percent deduction for company eating facilities is cut in half to 50 percent from 2018 through 2025 before it is completely repealed.
However, this fringe benefit remains tax-free to employees. Key exception: As opposed to the usual 50 percent write-off for entertainment and meals. a tax code provision allows a business to deduct 100 percent of the cost of a company-wide get-together.
This special exception has been preserved under the TCJA. Therefore, you can still organize a picnic or barbecue for the 4th of July and deduct the entire cost of treating staff to a day in the great outdoors.
The important thing to remember is that the entire staff must be invited. In other words, you can’t restrict the gathering to corporate officers or higher-ups. It has to be everyone into the pool!
So what happens if a few of your friends crash the party? In and of itself, this won’t jeopardize the deduction. However, any expenses attributable to social guests are nondeductible.
For example, say you invite 20 employees and their significant others to a picnic, plus five couples who are your closest friends. The event costs the company $10,000. In this case, you can write off 80 percent of the expense (based on 40 business guests out of 50 people) or $8,000.
This can be a good way to help build company morale on Uncle Sam’s dime. So advise your business clients to bask in the tax break for company outings this summer!
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...