To be tax-deductible, your business gym or other athletic facilities must be primarily for the benefit of your employees—other than employees who are officers, shareholders, or other individuals who own a 10 percent or greater interest in the business, or other highly compensated employees.
The 10% Ownership Test
For the 10 percent ownership test, the law treats employees as owning any interest owned by their brothers and sisters, spouses, ancestors (such as parents and grandparents), and lineal descendants (such as children and grandchildren).
The highly compensated group consists of employees who earned more than $150,000 for the preceding year.
The business gym or other athletic facility must benefit the rank-and-file employee group more than the owner and highly compensated employee group. Think of this primary-benefit test as a 51-49 test.
This means that the rank-and-file employees and their families must use the facility on more days than the owner and highly compensated group do.
To see if you pass the 51-49 test, look only at days of use of the business gym facility.
Example. Rank-and-file employees and their families use the business gym 235 days during the year and you, the business owner and your family, use it 137 days. The gym passes the 51-49 test. It’s tax-free to the users and deductible to the business as an employee recreational facility.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
Welcome to the Sterling Standard of business! Want to learn more? Schedule a meeting with our tax planning team here: https://www.srqtax.com/contact-us/