Many businesses host a picnic for employees in the summer. It’s a fun activity for your staff and you may be able to take a larger deduction for the cost than you would on other meal and entertainment expenses.
Generally, businesses are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible if incurred primarily for the benefit of employees other than certain highly compensated employees (The entire staff must be invited). These include expenditures:
- For recreational or social activities for employees, such as summer picnics and holiday parties,
- For food and beverages furnished at the workplace primarily for employees, and
- That are excludable from employees’ income as de minimis fringe benefits.
Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.
The use of reasonable estimates is not sufficient to stand up to IRS challenge. The business must be able to establish:
- The amount spent,
- the time and place,
- the business purpose, and
- the business relationship of the individuals involved.
For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact us.