As a small business owner, you're always looking for ways to maximize your tax deductions. One question that often arises is whether gym memberships can be written off on taxes. The answer isn't straightforward and hinges on several IRS guidelines and the specific circumstances under which the expense is incurred.

Understanding the General Rule

The IRS typically does not allow taxpayers to deduct gym memberships or other costs associated with general health and wellness. The main reason is that these expenses are considered personal, even if they contribute indirectly to improved work performance, stress reduction, or overall well-being.

According to IRS Publication 535 (Business Expenses), expenses are deductible when they are both ordinary (common and accepted in your field of business) and necessary (helpful and appropriate for your business). However, gym memberships do not usually meet these criteria under normal circumstances because they are deemed to be personal expenses.

In rare cases, if you can prove that the gym membership is a requirement for the job and is strictly for business purposes, it might be deductible. For example, a professional bodybuilder or a fitness coach might manage to claim these expenses because they may use the membership for the training of their clients. However, this is a narrow exception and typically hard to justify for most other professions.

Gym or Other Athletic Facilities

Having business facilities would be different than a gym membership. Think of this as having an on-site gym.

This is deductible by the business but there are some specific rules that must be met. Your gym or other athletic facilities needs to primarily serve the interests of your employees, excluding officers, shareholders, or other owners who possess at least a 10 percent stake in the business, as well as other highly compensated employees. 

• Primary Use
  • It has to primarily (more than 50%) serve your employees (excluding owners and highly compensated employees). 
  • You can use a days use test for this.
  • Essentially, regular employees need to use the gym more than owners and highly compensated employees
• Highly Compensated Employee (HCE)
  • The IRS looks at employees who earned more than $155,000 (2024) as highly compensated employees.
• Owner
  • The IRS looks at an owner in this situation as someone owning 10% or more of the business.
  • Family of an owner would also be considered an owner (Children, Spouses, Siblings, etc.)

Lets go through some examples to help illustrate this:

• Example 1: Mike (Owner), Jason (HCE), and Rachel (HCE) use the gym 280 times during the year and rank-and-file employees use it for a combined 300 times. This gym would be a deductible business expense.
• Example 2: Mike (Owner), Jason (HCE), and Rachel (HCE) use the gym 300 times during the year and rank-and-file employees use it for a combined 280 times. This gym would NOT be a deductible business expense.
• Example 3: Mike (Owner) uses the gym 250 times and only employee (rank-and-file) used it 300 times.  This is a deductible business expense.
• Example 4: Mike (Owner) and his family use the gym and there are no other employees. his gym would NOT be a deductible business expense.

If you are going down the route of having a gym (or other athletic facility) available to your employees you should have a sign-in sheet or something that you can use to document the use of the facility to ensure you are staying above that 50% primary use for rank-and-file employees.

At the end of the day if you want to build a gym (or other athletic facility) and get a business deduction for it, just make sure that rank-and-file employees use it more (aka grater than 50%) than owners (and their families) and highly compensated employees.

Conclusion

For most small business owners, gym memberships will generally not qualify as deductible business expenses. However, a gym (or other athletic facility) may, if you have employees. understanding the exceptions and rules can provide clarity and ensure that you are making the most of potential deductions while adhering to tax laws. Always keep detailed records and documentation to support your claims should the IRS inquire about your deductions.