Company retreats have many benefits, but they can cost a lot of money. Many companies take the typical business write-offs, but leave a lot on the table. One area you can easily overlook is business retreat deductions. If you can demonstrate that the primary nature of your company retreat is business related, and there’s work involved, then you may be able to deduct a large portion of your expenses. If you’re planning an offsite event for your company and want to know if you can deduct expenses from the retreat, then this post is for you. In this post, we will go over what company retreats are, some reasons to host an offsite event, how to tell if you can deduct expenses, typical deductions, and what you need to keep on file for taxes.
Disclaimer: This article was not created to be business or tax advice. To truly understand if your business can deduct your next company retreat, please contact your professional tax advisor.
What Are Company Retreats?
Company retreats, also called offsite events, are usually held at locations away from the primary place of business. Retreats are held to accomplish a number of various workplace goals and those goals are unique to the business. Company retreats can be a couple of days to a week or more, depending and can be national or international.
What Are Some Reasons To Have Company Retreats?
There are various reasons to host an offsite event for your company, but some are to team build, boost creativity, get clarity around goals, refresh your brand, reward your team, etc. Changing locations for business purposes can lead to breakthrough ideas or be a key reason to gather departments to finish big projects. If you’re a small or large business owner, retreats can be a great incentive to retain employees and offer them unique perks that provide great attention to detail, showing you value your staff.
As you’ll read in the next section, you’ll need to demonstrate to the IRS that the primary purpose of your retreat is for business (at least 60%), so it’s best to have reasons listed for hosting a retreat in writing. Consider listing the reasons why you would hold the retreat in a formal invitation or email to your employees and using that for documentation later.
How Do You Know If You Can Deduct Expenses?
In 2018, the Tax Cuts & Jobs Act changed what could be deducted for businesses. From now until 2025 when congress revisits, the TCJA has enacted that entertainment expenses are completely nondeductible. This can be a challenge for events that are business and entertainment related, such as company retreats. But, if you can demonstrate that the purpose of the retreat is directly related to business, then you can possibly deduct up to 100% of entertainment expenses. Keep in mind that business meals are typically only 50% deductible, so keep accurate records of receipts to avoid losing out.
The key things to remember are that 50% of the time, entertainment must be primarily for the employees, is available to all employees, there’s no discrimination in favor of owners (owning 10% or more of the business) or highly compensated employees (earning $130k per year or more), there’s documentation to prove who was there and what took place, and the entertainment was “ordinary and necessary”. If the entertainment is appropriate and helpful for your business, then it’s ordinary and necessary.
To show that entertainment is ordinary and necessary is simple: provide an agenda demonstrating that 60% of the retreat is for business purposes (or 3 out of 5 days). Some reasons for ordinary and necessary business would be why company retreats are important: boosting morale, rewarding employees, relieving stress, learning new skills, etc. Another way to show your offsite event is for business is to hire a professional coach, trainer, or speaker for the event.
What Are Typical Deductions?
Typical deductions for company retreats are food, lodging, travel, entertainment, and other business activities. Retreat leaders, like coaches, speakers, or professional planners could be partially or fully deductible. Business activities (travel, food, lodging, etc.) are deductible with accurate records. Personal costs could be 100% deductible if they’re included in an employee’s taxable compensation.
What Do You Need To Record For Taxes?
You’ll need to keep accurate records that detail that business was your primary purpose. Create a daily agenda that lists specific goals and tasks your team will accomplish or seminars they plan to attend. According to the IRS, “expenses for recreational, social, or similar activities” used “primarily for the benefit of the employees” are deductible; This is great news if you’re looking for an unconventional way to bring your team together at an offsite location.
Other records to keep that may be deductible are employee gifts, non-cash gifts at the retreat up to $25 per employee, and up to $1,600 for non-cash gifts for employees that achieved certain milestones (just over the value you’ll reward employees at Sandspit Adventures).
Company retreats are expensive and a lot of businesses leave a lot of money on the table come tax time, but if you can prove that 60% of your company retreat was related to valid business reasons, then you may be able to write a majority of the expenses you incur, making your next offsite event that much more attainable. Working with professionals that can help you plan offsite events makes your job even easier come tax time, since everything is included in the cost and we can itemize each line item for you, helping you to keep accurate records and provide a customized agenda.
If you’re interested in working with professionals to plan your next company event, get in touch with one of our Company Adventure Consultants or visit our Company Retreats page to learn more.