You can generally deduct the amount you pay your employees for the services they perform. The pay may be in cash, property or services. It may include wages, salaries, bonuses, commissions or other noncash compensation such as vacation allowances and fringe benefits.
A fringe benefit is a form of pay for the performance of services beyond your employees' normal rate of pay and can be property, services, cash or cash equivalents such as savings bonds. It can also be intangible, as in the use of a company car or life insurance.
You may deduct fringe benefit expenses if the goods, services or facilities are treated as compensation to the recipient and reported on Form W-2 for an employee or Form 1099-NEC for an independent contractor. (If the recipient is an officer, director or beneficial owner — directly or indirectly — or other specified individual, special rules apply.)
Let's take a look at specific fringe benefits:
However, with food and beverage expenses incurred with entertainment expenses, no business deduction is allowed for any item considered to be entertainment, amusement or recreation. If food and beverages are provided during an entertainment activity, the food has to be separate from the entertainment costs, and then you may deduct 50% of the bill. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 provides for a temporary 100% deduction until Jan. 1, 2023.
This is just a summary — there are many other exceptions and provisions. Since laws and regulations are complicated and can change with little notice, be sure to seek professional advice to ensure that your benefits are reported and taxed properly.
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