Do you throw a holiday party, summer outing or a similar type of event for your employees? The expense of providing recreational, social or similar activities (including the use of a facility) for your employees is deductible and isn’t subject to the 50% limit. However, the benefit must be primarily for employees who aren’t highly compensated.
A highly compensated employee is an employee who meets either of the following requirements:
• Owned a 10% or more interest in the business during the year or the preceding year. An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors and lineal descendants.
• Received more than $120,000 in pay for the preceding year. You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year.