WorldWide Drilling Resource

35 WorldWide Drilling Resource ® OCTOBER 2013 Drilling Into Money Not Boring by Mark E. Battersby Parties, Gifts, Happy Workers, and a Tax Deduction The season for gift giving and holiday parties will soon be upon us. Although many drilling business own- ers and managers clearly know how to celebrate and show their appreciation to both customers and employees, few are aware Uncle Sam, in the form of our tax laws, is more than happy to pick up part of the cost. In other words, those annual employee holiday parties may be 100% tax deductible. Naturally, not all gifts or partying is fully tax deductible by the drilling business, nor tax-free to the recipient. Generally, the Internal Revenue Service will allow a drilling business to deduct $25 or less for business gifts. However, those businesses considering a "small gift" for employees - fruit baskets, hams, turkeys, wine, flowers, and occasional entertainment tickets, such as for a show or sporting event - will find they are gen- erally considered nontaxable de minimis fringe benefits while tax deductible by the business. Ignored for tax purposes by workers and even customers, attending holiday parties, annual picnics, or summer out- ings may qualify for a unique 100% tax deduction by the business. Under our tax rules, entertainment expenses must be "primarily" for the benefit of employees other than those in a so-called "tainted group." The tainted group consists of any employee paid more than $110,000 a year, a 10% owner, or any family mem- ber of a 10% owner. The cost of occasional parties is nontaxable to employees and their fami- lies as a de minimis fringe benefit - if they are infrequent and for the purpose of promoting employee health, good will, contentment, or efficiency. Thus, occasional holiday celebrations, cocktail parties, and company picnics are fully tax deductible by the drilling operation or business. Even better, under our tax rules, they are not subject to the 50% limit on business meals. Of course, it is still necessary to satisfy the "ordinary and necessary" business purpose test. An "ordinary and necessary" expense simply means an expense which is "appropriate and help- ful" to the drilling business. Boosting the moral of workers, helping everyone feel appreciated makes a Christmas party 100% deductible. And, just as any entertainment must be documented, the 100% deductible employee entertainment expenses must be substantiated. Also, remember to write down the "who, what, when, where, and whys". Like all tax deductions, the write-off can't be nailed down without writing it down. It is also always a good idea to consult a tax advisor. Mark Mark E. Battersby may be contacted via e-mail at admin@ worldwidedrillingresource.com