Pump up tax breaks at gym

It is difficult for busy employees—including yourself—to find time to work out.

Strategy: Use part of your business building as a gym or other athletic facility. As long as certain requirements are met, use of the area is tax-free to employees. Plus, your business can deduct the cost, including any required renovations.

Conversely, you may offer to pay or reimburse employees for the cost of a gym membership, but it won't qualify for the tax exclusion. The value of the membership constitutes taxable compensation to participating employees regardless of your intentions.

Here's the whole story: An employer may provide a gym or comparable fitness facility tax-free for the benefit of its employees, their spouses and dependent children. For these purposes, "employees" include:

To qualify for the exclusion, the facility must be located on premises owned or leased by the employer, operated by the employer, and substantially all use of the facility must be by employees, their spouses, and dependent children. The facility cannot be open to the general public, and it cannot be a resort, hotel, or other commercial facility.

Tip: Your business may also be able to deduct costs related to the facility, such as insurance, utilities, equipment, and maintenance.

What doesn't qualify

If your business simply pays for or reimburses employee gym memberships at an outside facility, the IRS treats those payments as taxable wages. The same is true for memberships at country clubs, athletic clubs, or any commercial fitness center—even if the membership is genuinely intended to promote employee wellness.

The on-site requirement is the key distinction. The tax-free exclusion exists because Congress wanted to encourage employers to make fitness convenient and accessible at the workplace, not to subsidize outside memberships.

Tip: If you're considering adding a fitness area, talk to your tax professional first. The setup, location, and access rules all matter for qualifying under Section 132 of the tax code.