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Several years ago, I wrote that you could have an in home athletic facility (such as gym equipment) offered to you and your employees as longs as you didn’t discriminate in favor of the owners. I also suggested that a sole proprietorship might be able to deduct an in house gym if their family-employee used the gym since there would be no discrimination. Finally, I mentioned that outside gym memberships might also be deductible under certain circumstances if done on a non discriminatory basis. As a result of the new tax law as well as a recent tax court case, all this has changed.
First, gym memberships were completely disallowed under the new Tax Cuts and Jobs Act. Thus, no longer can businesses deduct athletic or social club memberships.
Secondly, an in-home athletic facility can still be deducted for employees, BUT owners and officers who own at least 10% of the stock or ownership of the business are not deemed employees. Even worse, your family usage is deemed attributed to you.
What this means is that if you can’t deduct the in home athletic club if the majority of the usage comes from either you or your family. Generally the word majority means more than 51% of the daily use.
Finally, what about the one owner scenario? I always thought that a sole proprietor who hires his or her wife and installs a gym would not discriminate since all employees and family members of employees would be using the in home gym. Sadly a recent tax court case seems to have nixed this strategy, although the case is a bit unclear.
Bottom line: Setting up a gym in your home for employee usage which is primarily used by your family, even if employees, won’t work. Also, as a result of the new tax law, gym memberships deductions won’t work either. Welcome to the beginning of a flat tax.
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