In this episode of the Profitable Painter Podcast, hosts Daniel (founder of Bookkeeping for Painters) and Richard (tax director) discuss how painting business owners can use company retreats and employee appreciation events as tax‑advantaged business expenses. They recount their own inaugural yearly retreat in Cancún, describing the planning, the all‑inclusive resort costs, and the blend of work and leisure. The conversation then shifts to the tax implications of cash bonuses versus experience‑based rewards, explaining that cash or cash‑equivalent gifts are taxable income subject to payroll taxes, while bona‑fide employee appreciation events (meals, entertainment, trips) can be fully deductible and exempt from payroll taxes if they meet IRS criteria. They outline the requirements for such events – primarily for employee and family benefit, open to most staff, and not primarily for generating new business – and stress the importance of budgeting for these experiences to build team cohesion, improve employee morale, and achieve a better return on investment than cash payouts. The hosts also provide practical cost benchmarks for an all‑inclusive Cancún retreat and encourage listeners to consider similar events (barbecues, holiday parties, lunches) as cost‑effective ways to boost morale while optimizing tax savings.
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Welcome to the Profitable Painter Podcast. The mission of this podcast is simple: to help you navigate the financial and tax aspects of starting, running, and scaling a professional painting business. From the brushes and ladders to the spreadsheets and balance sheets, we've got you covered. But before we dive in, a quick word of caution: while we strive to provide accurate and up-to-date financial and tax information, nothing you hear on this podcast should be considered as financial advice specifically for you or your business. We're here to share general knowledge and experiences, not to replace the tailored advice you get from a professional financial advisor or tax consultant. We strongly recommend you seeking individualized advice before making any significant financial decision.
Hey, this is Daniel, the founder of Bookkeeping for Painters.
And this is Richard. I am the tax director for Bookkeeping for Painters. How's it going, Daniel?
It's going well. How you doing today?
I'm doing great. You know, we just got back from our company retreat in Cancún last week, so I got a little sun, ate some good food, had a margarita, and we got a lot of work done too.
Yeah, you had more than a margarita, but, uh, well, don't tell the listeners that. I don't know.
No, we had a good time.
Yeah, it's a good stuff. Uh, Yeah, so we do a, well, we just started doing a yearly event where we bring together the team and we went to Cancún as our first inaugural, you know, yearly retreat. So the idea was let's do a planning session with the team, you know, face to face because we're a remote team. So we don't see each other in person. We, you know, work over Zoom. So that was kind of cool. Plus it was in a really nice resort. Where there was a pool, there was a beach right there. There was a lot of good restaurants, all-you-can-eat. It was pretty fun to see the team and get some good planning. We were able to do a 1-year plan. So I think it was a success.
Yeah, I think so too. It was definitely great to be able to see everybody and work together. We did get a lot of work done, but we also had a lot of fun as a team. And so I think that helped. To draw us closer. So definitely a good use of the week.
Yeah. And this brings us to our topic of our— yeah, this podcast, which is, you know, basically how can you use your business as a vehicle to, one, kind of do some fun things, but also get some work done and do that in a way that is optimized for tax savings. So why don't you kind of go through, Richard, since you're the tax expert here, uh, why, why might we want to, you know, do something like this where we're doing a yearly event? Or maybe it's not going to Cancun, maybe it's just like doing a barbecue, uh, you know, a monthly barbecue, quarterly barbecue, or something on a recurring basis with your team instead of maybe doing bonuses or something like that.
Yeah, so I mean, I would say that the first and probably the most important reason is to build those friendships and those relationships with, with your coworkers. That, that cannot be understated. You know, if you take care of your employees, your employees will take care of your customers. And being able to, you know, show that appreciation and have that team building is very important. That being said, I think what you were alluding to is doing that in a way that is most tax advantaged so that we are getting the most for our money.
Right.
Because we, we do live in the real world. We have budgets and we need to be able to stay within those budgets. So if you are able to budget a certain amount of money to show employee appreciation, Your first thought might be, well, everybody loves cash. I will throw a bonus in the paycheck. I will hand them a gift card, that sort of thing. And, and that's great. The thing to keep in mind, though, is that any time an employer gives an employee cash or a cash equivalent such as a gift card, that is considered to be taxable income by the IRS. They are very strict about this. And unfortunately, there's not really, you know, creative ways around it. If you put money in an employee's paycheck or if you hand them $1,000 or whatever, you must recognize that as income and it needs to be reported on their W-2. Why is that so important to the IRS? Well, they want to be able to tax it. And it's not just income tax. It's also payroll taxes. So not only is the employee paying normal income tax on that money, they're also paying, you know, 6— I'm sorry, 7.65% for Social Security and Medicare. You as the employer, you're paying 7.65% Social Security, Medicare. And now all of a sudden that $1,000 bonus becomes worth, you know, more like $850 or even less after the employee gets done being taxed on it from federal and state. So a way that you can kind of maximize your budget is by not giving cash, but rather by giving experiences, experiences, entertainment, food, trips to Cancún. These are things that can be written off 100% and they are not subject to payroll taxes. They are not subject to income taxes as long as it is a part of some kind of like bona fide employee appreciation.
So it sounds like— if it sounds like giving cash bonuses is super expensive, super expensive from a tax perspective to the business owner. So you pay cash to an employee, it's going to cost you a bunch extra in taxes. But if you can, instead of doing that, do some sort of experience where you're doing some sort of leadership meeting, employee, uh, appreciation holiday dinner, something like that. It's, it's a lot. You basically get around having to pay those extra taxes because you don't have to run it through payroll. You just hold the experience. Um, and as long as it does have a, a, a true business purpose, like you're doing some planning or you're you're showing appreciation to your employees, it's the benefit of your employees, that that can be tax deductible still to you and then it's not getting taxed to your employees. So it's a kind of a win-win, sounds like.
Yeah. Yeah, it really is. The thing to keep in mind is, is it needs to be a legitimate, you know, employee appreciation event. And so the way you kind of determine that is is the food, the entertainment, the whatnot, is it primarily for the benefit of the employees and their families, or are you expecting to get some kind of like extra business benefit from it? So, so for example, you rent a hall, you cater, you know, a meal you have a band and you invite your entire company to come and celebrate the holiday with you. That is for the benefit of the employees and their families. You don't have potential customers there. You're not trying to strike up deals, you know, for new work and that sort of thing, which, which I mean, those, those things have their place and there are certain tax deductions available. But we're talking about bona fide employee appreciation here. The other thing is it needs to be open to most, if not all, of your employees. So what you can't do is you can't say, you know, just the highly compensated officers who we're all friends with, we're, we're going to have a party and nobody else gets to come. We don't We don't want to give the appearance that we're somehow getting a big benefit for ourselves and we're— what's really should be like a distribution is being, you know, classified as employee appreciation. That's not to say you have to invite everybody. There may be reasons why you want just, you know, the officers or directors of your company for, for an event, but it needs to be you know, have a legitimate business purpose. And generally speaking, it should be open to most, if not all, of the employees.
Cool. Yeah. So it sounds like experience is definitely something we want to do, not only for the tax benefit, but there's also the, the soft reasons why you'd want to do that. Like it's just, it helps build, build your team, uh, you know, build rapport with your team. They get to do something cool, maybe go somewhere new, or maybe it's just something simple like a company barbecue, which could be relatively inexpensive but still build relationships there.
Yeah, I think you can't really understate the importance of the experience. You know, if I'm, you know, being honest, if someone gave me $1,000, I would be very grateful for it. And I would probably use that money to pay my mortgage, pay off credit card debt, utilities, things like that. Very important things. But does that, you know, does that bonus really resonate in my mind? No, I'm using it to pay bills. If you took $1,000 and you provided me with a really unique experience with my coworkers building relationships, that is something I'm going to remember for a very, very long time and have, you know, lasting benefits from. So, you know, it's just kind of like, you know, how can you use your budget the most effectively, especially if you're on a smaller budget? You know, maybe, maybe we're not talking about a trip to Cancún, but as, as you mentioned, Daniel, employee barbecues, holiday parties, you know, even just lunch for the team can go a long way in showing that appreciation and can be rather cost-effective if handled properly.
Yeah.
And don't, don't think Cancún is too expensive either, because I think the price per room was like $200 a night, but that included all-you-can-eat, you know, you get free breakfast, lunch, dinner. It was all-inclusive resort, and so you had access to pool, beach, food throughout the day. Alcohol was included, and it was like between $200 and $300 per person per night. So, you know, it's— you wouldn't be able to get that, those kind of prices at that quality anywhere in the United States. So don't leave Cancún off the, off the table if you think it would be super expensive, but actually it's, it's, it's pretty inexpensive if you can. The biggest thing is just paying for the flights.
Yeah. Well, I, I'll tell you my opinion. If I had to choose between, you know, going to Cancún or going to Baltimore, I'm, I'm, you know, especially in the winter, nothing against Baltimore, but I think the beaches in Cancún are, are slightly nicer. Yeah.
Yeah. Awesome. Yeah, it was a good time. All right. Well, I think that is about all we were going to cover today. Was there anything else that you wanted to close out with, Richard?
No, I think that's it. You know, just the value of team building and employee appreciation. It really should be an expense that we budget for at least something. The return you'll get on the investment is going to be great. And if you handle it in a way where, you know, you're really getting a lot for your money and you're avoiding paying extra taxes on it, it can be an important part of operating your business and building those relationships.
Absolutely. All right. We'd love to hear your thoughts, comments. Maybe you do something similar, a yearly event in your business, or maybe you're thinking about doing something like that and you have questions about how How can I make sure I maximize my savings for tax purposes? Definitely let us know your questions and comments. Go to Grow Your Painting Business Facebook group, just search that in Facebook and join the conversation. Love to hear from you.
Yeah, I would love to see your thoughts. And if you have any plans for summer picnics or holiday parties coming up, we'd like to hear about it. Thank you very much for listening, and we will see you on the next episode.
