Are you thinking about creating a company gym, fitness center or other athletic facility for your employees? It can be a great feature for a business campus. And, it is an excellent employee benefit to help with attracting and retaining quality candidates.
To be tax deductible, the employee gym or athletic facility must be primarily for the benefit of your employees. We’re talking about employees who are not officers, shareholders or other business owners who own at least 10% in the company. The gym should be accessible and commonly used by your regular employees and not just a facility for the top brass and ownership.
To be considered an owner of 10% or more of a business, tax laws not only consider the employee’s direct ownership percentage. They also factor in any ownership interest of siblings, spouses, parents, ancestors and direct descendants (children and grandchildren) of that employee. Other employees who are considered as “highly compensated” are those who make more than $150,000 a year. They will also be counted along with the ownership group.
For tax-deduction purposes, the gym or other fitness/athletic facility must benefit the rank-and-file employees more than the owners and highly compensated employees. In other words, at least 51% of gym users should be made up of the regular employee group and their families. They must use the facility on more days than the other groups. Average days of use per year is the primary measurement for passing this usage test.
Let’s say your employees utilize the gym 250 days a year. You and any fellow owners/highly compensated employees only use it 150 days a year. This facility will pass the tax-deductible test because it is used more often by your regular employees. If you flip these numbers, then it the gym cannot be deducted as an employee benefit expense.
To learn more about how to successfully implement a gym, fitness center or other athletic facility as a tax-deductible employee benefit—or to discuss any other business planning or tax planning needs—please contact Illumination Wealthy today to talk with one of our experienced financial advisors.