Deducting Arcade and Pinball Machines in Non-Entertainment Industries

As a business owner, you're always looking for ways to level up your tax game and score big deductions. If you own a bowling alley, barcade, or just a bar, you can easily deduct the cost of buying that Golden Tee arcade machine or pinball table. But even businesses that aren't directly related to entertainment, such as a dentist's office or CPA firm, may be able to deduct arcade and pinball machines, especially if they use these machines to improve the customer experience or provide an engaging waiting area for clients and employees. Let's dive into how these machines can be game-changers for your business.

1. Enhancing the Waiting Area Experience

In many service-oriented businesses like dental offices, law firms, or accounting practices, providing a pleasant experience for clients while they wait is essential. Arcade or pinball machines can be used in waiting areas to entertain and engage clients, making their wait time more enjoyable, turning a typically negative experience into a positive one. This small upgrade can improve customer satisfaction and help set your business apart from competitors. Since the machines are used in a business context to enhance the client experience, they may qualify as ordinary and necessary business expenses.

2. Business Reputation, Loyalty, and Referrals

When clients leave with a good impression of your business, they are more likely to come back, which can directly impact your bottom line. According to data from Review 42, acquiring new customers costs 5x as much as retaining your existing clients. This benefit compounds as they send friends and family your way, which is another key revenue point for businesses. Not only is referral marketing completely free, but it is also the most effective way to get new customers in the door. In fact, 92% of customers trust referrals from friends and family over any other source of advertising.  

With this in mind, it is easy to see how the ROI of entertainment systems, arcades, and pinball machines can appeal to businesses, especially when they can deduct them on their taxes. 

3. Catering to a Larger Market

Entertainment features (especially those for all ages) can help attract a larger market of customers to your business. For example, let's say you are a dental office that serves children, teens, and adults. A pinball machine or arcade appeals to all of these audiences. So, if a parent who typically sends their child to a pediatric-only dentist sees this family-friendly entertainment in your office, they may be inclined to explore the depth of your services and switch them over. 

4. Employee Morale

In non-entertainment industries, arcade and pinball machines can also be beneficial in employee break rooms or recreational spaces. By offering employees a fun way to unwind, these machines can help boost morale, reduce stress, and contribute to a positive work environment. This use can also be classified as an ordinary and necessary business expense, as it supports employee productivity and well-being.

Business Entertainment Expenses: What Can Be Deducted?

Several expenses related to arcade and pinball machines are potentially tax-deductible for non-entertainment businesses, including:

• Purchase Price: The cost of buying the machines, whether new or used, can generally be deducted as a business expense. The IRS allows you to depreciate the machines over time, spreading the deduction across several years (usually over a 5- or 7-year period for equipment like arcade and pinball machines).
• Maintenance and Repairs: Any costs associated with maintaining or repairing the machines are deductible. This includes cleaning, parts replacements, and professional repair services.
• Supplies and Accessories: Items like tokens, spare parts, or machine accessories that are necessary for the operation of the games can also be deducted.
• Leasing: If you lease arcade or pinball machines instead of purchasing them, the lease payments may be deductible as a business expense.

Record-Keeping: Essential for Deducting Arcade Machines

Buying an entertainment system for your office doesn't guarantee a tax break. To ensure that your arcade or pinball machine expenses are deductible, it's crucial to keep accurate records. Not only will this help you get the tax benefits you deserve, but it will also make things easier come tax season if you have everything organized in one place. Here's what you should track:

• Receipts and invoices for the machine's purchase, repair, or leasing. 
• Maintenance logs showing any work done on the machines and the costs involved.
• Business-related documentation that ties the use of the machines to your business activities (for example, photos or event descriptions if the machines are used for employee events or customer engagement).

Potential Pitfalls to Avoid

While arcade and pinball machines can qualify as ordinary and necessary business expenses, there are a few pitfalls to watch out for:

• Personal Use: If the machines are used primarily for personal purposes, the IRS may disallow the deduction. Ensure the machines are primarily for business purposes to ensure they qualify.
• Overly Excessive Claims: Be careful not to go overboard with deductions. If your business doesn't benefit from arcade machines in an obvious way, it could be seen as a "cheat code" to get more than you're entitled to. Keep your claims reasonable and make sure they're justifiable.
• Income on Disposition: If you fully write off that Pac-Man machine, you have zero basis in that machine. So, if you sell Pac-Man for $6,000 after your business is done using it, you have to recognize $6,000 of income in that year.

How to Maximize Your Business Deductions

To maximize your deductions for arcade and pinball machines, consider the following strategies:

• Depreciation: Leverage the IRS depreciation rules to spread the deduction for purchasing the machines over several years. This will reduce your tax liability each year. If we get 100% bonus depreciation implemented again, you can write off 100% of the machine in the year you purchase it and place it in service.
• Section 179 Deduction: If you buy the machines outright, you may be able to take advantage of the Section 179 deduction, which allows you to deduct the full purchase price of qualifying business equipment in the year it's purchased, up to certain limits.
• Track Expenses: Keep track of all related costs, including repairs, utilities (if you're running the machines in a dedicated space), and supplies. These can add up over time and provide significant savings come tax season.

Maximizing Your Deduction: Revo Tax

Arcade and pinball machines can be great tools for leveling up your business. Whether you're running an entertainment venue, a dentist's office, or a CPA firm, these machines can help keep clients and employees engaged, entertained, and happy. If you're using these machines in a business context, they can qualify as ordinary and necessary business expenses. With the right record-keeping and professional tax support, you can boost your tax savings and come out ahead. So don't let this opportunity pass you up—you've got the tax advantage in your corner!

When you are ready to find Hidden Money and slash your taxes, Revo Tax is here for you. Whether you need help with tax planning, audit defense, tax preparation, or BOI filing, our specialists will find every deduction and ensure you don't pay a penny more than you need to. You can book an appointment to get started today! 

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