It’s a lovely time of year, and you may have employees, customers, and clients to buy gifts for. That’s great! After all, who doesn’t love getting gifts? But if you’re like many people, you might be wondering how this impacts your tax situation. The good news is that there are ways to reduce your tax bill on the gifts you give during the holidays. Here are some tips on how to deduct your holiday gift giving:
Gifts to Employees
As a holiday gift, giving cash or cash equivalents, such as gift cards or gift certificates, is taxable income and not deductible. Employee gifts that are not cash or cash equivalents are commonly referred to as de minimis gifts, which refer to gifts of small or insignificant significance. These gifts are valued at $75 or less per employee. As the amounts spent on gifts for each employee and the frequency with which they are provided are so minimal, they are not taxable. Therefore, your business can deduct these costs from its taxes.
Holiday work parties are also a wonderful way to thank and appreciate your staff while taking advantage of their status as tax deductions. If you decide to throw a holiday party for your employees, this is completely tax deductible and is not considered income. However, there are some conditions that must be met. Everyone who works for you must be invited to the office party, so no one should be left out of the holiday get-together. Customers or clients may not be invited in order to maintain tax-free status, but employees and their families may be. It is also recommended that holiday gatherings are simple, include only the essentials in terms of food and drink, rather than become extravagant and expensive.
Gifts to Employees
There is a cap on the amount you can deduct when sending holiday presents to clients or customers, but this is generally considered to be a tax-deductible expense. The Internal Revenue Service (IRS) permits a deduction of up to $25 for each recipient of a gift you deliver throughout the tax year. The price of packaging and delivering items to customers is not included in your $25 cap if you wish to engrave your company’s brand on them.
Different tax laws may apply when sending presents to groups. When you send a gift to an entire company, such as a fruit basket to a customer or business partner, the gift is deductible in any amount as long as it is fair.
Gifts to Married Couples
If you’re giving a gift to a couple, it’s considered two separate gifts. This means that the total value of your individual gifts can be up to $25 per person.
Recordkeeping for Business Gifts
Keep records of the cost of gifts you give to others, and the identity of the recipients. You must document these gifts, either with a receipt or by keeping a list.
We hope that you have enjoyed reading this article and found it helpful. If you’re still unsure whether or not your gift will be deductible, you can schedule a free consultation with us.
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