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With Thanksgiving behind us, the holiday season is in full swing. At this time of year, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It\u2019s a good idea to understand the tax rules associated with these expenses. Are they tax deductible by your business and is the value taxable to the recipients?<\/p>\n
Customer and client gifts<\/strong><\/p>\n If you make gifts to customers and clients, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you don\u2019t need to include \u201cincidental\u201d costs that don\u2019t substantially add to the gift\u2019s value, such as engraving, gift wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral \u2014 such as small items imprinted with your company\u2019s name and logo \u2014 provided they\u2019re widely distributed and cost less than $4.<\/p>\n The $25 limit is for gifts to individuals. There\u2019s no set limit on gifts to a company (for example, a gift basket for all team members of a customer to share) as long as they\u2019re \u201creasonable.\u201d<\/p>\n Employee gifts<\/strong><\/p>\n In general, anything of value that you transfer to an employee is included in his or her taxable income (and, therefore, subject to income and payroll taxes) and deductible by your business. But there\u2019s an exception for noncash gifts that constitute a \u201cde minimis\u201d fringe benefit.<\/p>\n These are items small in value and given infrequently that are administratively impracticable to account for. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.<\/p>\n De minimis fringe benefits aren\u2019t included in your employee\u2019s taxable income yet they\u2019re still deductible by your business. Unlike gifts to customers, there\u2019s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.<\/p>\n Important: Cash<\/em> gifts \u2014 as well as cash equivalents, such as gift cards \u2014 are included in an employee\u2019s income and subject to payroll tax withholding regardless of how small and infrequent.<\/p>\n Throwing a holiday party<\/strong><\/p>\n Under the Tax Cuts and Jobs Act, certain deductions for business-related meals were reduced and the deduction for business entertainment was eliminated. However, there\u2019s an exception for certain recreational activities, including holiday parties.<\/p>\n Holiday parties are fully<\/em> deductible (and excludible from recipients\u2019 income) so long as they\u2019re primarily for the benefit of non-highly-compensated employees and their families. If customers, and others also attend, holiday parties may be partially deductible.<\/p>\n Spread good cheer<\/strong><\/p>\n Contact us if you have questions about giving holiday gifts to employees or customers or throwing a holiday party. We can explain the tax rules.<\/p>\n \u00a9 2019<\/em><\/p>\n <\/body> With Thanksgiving behind us, the holiday season is in full swing. At this time of year, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It\u2019s a good idea to understand the tax rules associated with these expenses. Are they tax deductible by your […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-14260","post","type-post","status-publish","format-standard","hentry","category-small-business-tax"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14260","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=14260"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14260\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=14260"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=14260"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=14260"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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