If your company owns a weekend retreat where you like to enjoy the great outdoors, you probably know that the IRS's "entertainment facility" rules typically prevent you from deducting depreciation and related expenses for the place, even if you entertain clients there.
Strategy: Invite employees to use the place, too. If the entertainment facility is used "primarily" for employees' benefit—not exclusively by your company's higher-ups—your company can claim deductions for depreciation or rent, upkeep, insurance and so on.
The deduction hinges on the word "primarily." To determine whether employees primarily use the facility, the IRS will look at the number of days that rank-and-file employees actually use the place versus its use for other purposes.
In other words, if employees use the place more than 50 percent of the total days it's used, you're in the clear. Also, that means you can claim write-offs for the days the company uses the facility to entertain business clients, even if the entertainment is just for good will.
Keep in mind that the facility must be available to all employees. You can't limit the guest list to company officers or key employees.
Example: fishing for tax deductions
Let's say you own a company with 20 employees, many of whom were with you in the early days. The company owns a fishing lodge that's used 100 days during the year.
For 35 days, you use the lodge to en-tertain clients. For 10 days, your family uses it personally. During the remaining 55 days, company employees use it personally.
Based on those facts, the lodge is used primarily by employees more than 50 percent of the time (55 days out of 100).
And since the business use of the lodge is 90 percent (55 days by employees plus 35 days for entertaining clients), your company can write off 90 percent of the depreciation and other qualified expenses.
Key point: That tax break is an all-or-nothing deal. You'll gain no partial tax benefit if employees use the facility less than 50 percent of the time.
Looking back at our previous example, if your employees end up using the lodge only 44 days—as compared to 45 days of other use—you'll gain no deductions for the entertainment facility. You can't even write off the cost attributable to the employees' use.
Grab a partial write-off
Even if employees won't use the place and, therefore, you can't deduct entertainment facility expenses, you can still write off 50 percent of your out-of-pocket meal and entertainment expenses that directly precede or follow a substantial business discussion.
For instance, if you negotiate a deal with an out-of-town client on Friday and invite the client to the lodge on Saturday, you can claim deductions for all your entertainment costs at the lodge, even the cost of the fishing bait!