Question: Leo owns a small HVAC business and recently hosted a summer kick-off barbecue at his shop for his five technicians; he also participated. No customers or other management staff attended. Leo provided sodas, juice, burgers and brats for the event. Is the cost of the food and beverages fully deductible or subject to the 50% limit?
Answer: The entire cost of the food and beverages is 100% deductible under Reg. §1.274-12(c)(2)(iii). The barbeque qualifies as a social or recreational activity (such as a picnic or informal gathering) primarily provided for the benefit of non-highly compensated employees.
Although Leo attended, his participation does not affect the deduction as long as the event was not primarily for his own benefit and no other highly compensated employees were involved. If these conditions are met, the expenses are fully deductible, not limited to 50%.
To substantiate the deduction, Leo should maintain records detailing:
- The business purpose of the event
- A list of attendees
- Receipts for food and beverage expenses
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.