Can Small Business Owners Write Off Gym Memberships on Taxes?

guest post by Mike Jesowshek, CPA

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.

Loopholes

This is Tod with SimpliMD back with you, and you're right if gather from this article that gym memberships are generally not deductible as business expenses for small business owners. The IRS considers gym memberships as personal expenses, even if they contribute to overall wellness or potentially improve business performance through better health, reduced stress, or increased productivity.

However there are some loopholes for single member S-Corp and C-Corp owners, like most physician micro-corporations, and thus you do have the opportunity to incorporate wellness elements like gym memberships into your corporate medical reimbursement plans.

Here’s a breakdown of how gym memberships and wellness programs are treated from a tax perspective for small business owners and their companies:

1. Gym Memberships for Owners:

As you quoted, gym memberships are usually considered personal expenses, even if you use the membership for stress relief or staying fit for the job. According to IRS Publication 535, for a business expense to be deductible, it must be both:

• Ordinary: Common and accepted in your field.

• Necessary: Helpful and appropriate for your business.

For most business owners, a gym membership wouldn’t meet these criteria unless your profession requires physical fitness (e.g., a personal trainer or professional athlete). In most cases, the IRS sees this as a personal health expense.

2. Wellness Plans and Gym Memberships for Employees:

If you own a C-Corp or S-Corp and provide gym memberships or wellness plans to your employees, the situation changes slightly. Keep in mind as a single member micro-corporation you are often the only employee. Wellness programs and fitness memberships provided to employees may be deductible business expenses if structured correctly, but there are limitations:

• For C-Corps: Wellness benefits (including gym memberships) provided to employees can be deducted as a business expense and treated as a fringe benefit. However, if the benefit is offered to highly compensated employees (HCEs) or owners, you need to follow the IRS nondiscrimination rules to avoid adverse tax consequences. This means you must ensure the benefit primarily serves non-owners or lower-paid employees. Again, as a professional micro-corporation owner this requirement has little consequences to you.

• For S-Corps: The rules are more restrictive. If an S-Corp provides wellness or gym memberships as a fringe benefit, the value of those memberships would likely be treated as taxable income for employees who own more than 2% of the company and potentially other family members. For employees who are not shareholders, this may still be a deductible business expense.

3. Building On-Site Gym or Athletic Facilities:

As mentioned in the CPA article, a business can deduct the cost of creating or maintaining an on-site gym or athletic facility. However, the primary use of the facility must be for employees, excluding owners or HCEs (those making over $155,000/year in 2024). The translation here is that your professional micro-corporation cannot pay for you to construct an on-site gym or athletic facility.

Important Rules for On-Site Gyms:

• More than 50% Use by Rank-and-File Employees: To deduct the costs of an on-site gym, the gym must be used primarily (over 50%) by non-owners and non-HCEs.

• Ownership Limitations: Owners with 10% or more stake in the company, and their family members, are excluded from using the facility if you want it to remain deductible.

• Documentation: If you provide an on-site gym, maintaining documentation (such as sign-in sheets) to show that the gym is used primarily by rank-and-file employees is crucial to justify the deduction to the IRS.

4. Alternative Wellness Programs:

There may be ways to offer wellness benefits in a more tax-advantaged way. Some alternatives include:

• Health Reimbursement Arrangements (HRAs): HRAs allow companies to reimburse employees for certain medical expenses, including wellness-related costs like gym memberships, in some cases. However, for S-Corp owners, reimbursement of personal health costs may be considered taxable income.

• Employee Wellness Programs: These can include incentives for participating in fitness programs or covering a portion of wellness-related costs (e.g., fitness tracking devices or classes) and might be easier to structure as tax-deductible business expenses.

Final Thoughts:

For most small business owners, gym memberships are considered personal expenses and cannot be deducted. However, creating a wellness plan that includes gym memberships for your employees can be tax-deductible, particularly for C-Corps, provided you adhere to the rules governing nondiscriminatory benefits. If you are considering building a gym facility at your business location, ensure it primarily serves non-owners and lower-wage employees to meet the IRS requirements for a deduction.

Please remember, I am not a tax, accounting, or legal professional and this information is for your entertainment and enrichment. It's always a good idea to consult with a tax professional or CPA to ensure you structure your benefits plan in a way that maximizes potential deductions while staying compliant with IRS regulations.

Learn the rules around deducting gym memberships and wellness expenses as a C-Corp or S-Corp owner. Discover strategies to maximize deductions while staying IRS-compliant. Join SimpliMD as a member for $99 (worth $2500 in products) or book a $99 micro-business consult with me today!