The holiday season is a great time for businesses to show their appreciation for employees and customers by giving them gifts or hosting holiday parties. Before you begin shopping or sending out invitations, though, it\u2019s a good idea to find out whether the expense is tax deductible and whether it\u2019s taxable to the recipient. Here\u2019s a brief review of the rules.<\/p>\n
Gifts to customers<\/p>\n
When you make gifts to customers, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you need not 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 pens or stress balls 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 (a gift basket for all to share, for example) as long as they\u2019re \u201creasonable.\u201d<\/p>\n
Gifts to employees<\/p>\n
Generally anything of value that you transfer to an employee is included in the employee\u2019s taxable income (and, therefore, subject to income and payroll taxes) and deductible by you. But there\u2019s an exception for noncash gifts that constitute \u201cde minimis fringe benefits.\u201d<\/p>\n
These are items so small in value and given so infrequently that it would be administratively impracticable to account for them. 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 are not included in an employee\u2019s taxable income yet are still deductible by you. 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
Keep in mind that cash 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
Holiday parties<\/p>\n
The Tax Cuts and Jobs Act reduced certain deductions for business-related meals and eliminated the deduction for business entertainment altogether. There\u2019s an exception, however, for certain recreational activities, including holiday parties.<\/p>\n
Holiday parties are fully deductible (and excludible from recipients\u2019 income) provided they\u2019re primarily for the benefit of non-highly-compensated employees and their families. If customers also attend, holiday parties may be partially deductible.<\/p>\n
Gifts that give back<\/p>\n
If you\u2019re thinking about giving holiday gifts to employees or customers or throwing a holiday party, contact us. With a little tax planning, you may receive a gift of your own from Uncle Sam.<\/p>\n
\u00a9 2018<\/p>\n","protected":false},"excerpt":{"rendered":"
The holiday season is a great time for businesses to show their appreciation for employees and customers by giving them gifts or hosting holiday parties. Before you begin shopping or sending out invitations, though, it\u2019s a good idea to find out whether the expense is tax deductible and whether it\u2019s taxable to the recipient. Here\u2019s … <\/p>\n