Kevin Hagen writes: When
you give gifts in the course of your business, you can claim a tax
deduction. But according to the IRS the deduction is limited to $25 for
each person to whom you give a gift. So if you give gifts to your
employees you could claim a tax deduction of up to $25 for each
employee. If the individual gifts have a value of more than $25, your
deduction is limited to $25 for each employee.
If you are married, you and your spouse are treated as one taxpayer for this deduction for gifts, even if you each operate a separate business. So if both of you gave separate gifts to the same person, you could deduct only $25 in total for the gifts to that person.
According to the IRS, if your business gives employees goods or merchandise of nominal value at holidays, you can deduct the cost as a non-wage business expense. Gifts other than cash, with a low market value, are considered de minimis benefits that can be excluded from the employees' wages. So for example if you give your employees a turkey for the holidays, you could deduct the cost as a business expense and the value of the gift would not be includible in the employees' income for tax purposes.
But the IRS points out that cash and cash equivalent fringe benefits, such as gift cards, charge cards or credit cards, are never excludable from employees' wages as de minimis benefits, regardless of the amount. So if you give your employees gift cards, the value of the cards would have to be included in the employees' wages as taxable compensation and reported on their W-2s.
Gift certificates would be includible in employees' taxable wages even if the certificates are redeemable only for merchandise that would otherwise be excludible as a de minimis benefit.
Deductions for de minimis gifts of food and drink are not subject to the 50% limit on deductions for business meals. So holiday parties at work would generally be a fully deductible expense for your business.
If you pay your employees a holiday bonus, the bonuses would be a tax-deductible business expense and would be taxable compensation for the employees. The bonus would be subject to FICA tax and federal income tax withholding, generally at a rate of 25% since a bonus is considered supplemental compensation.
Discounts you provide to your employees on goods or services that you offer customers in the ordinary course of your line of business are excludable from the employees' taxable wages up to certain limits. For services, a discount of up to 20% of the price you charge customers can be excluded from the employees' taxable wages. For merchandise, you can exclude a discount of up to the amount of your gross profit percentage on sales to customers.
If you are married, you and your spouse are treated as one taxpayer for this deduction for gifts, even if you each operate a separate business. So if both of you gave separate gifts to the same person, you could deduct only $25 in total for the gifts to that person.
According to the IRS, if your business gives employees goods or merchandise of nominal value at holidays, you can deduct the cost as a non-wage business expense. Gifts other than cash, with a low market value, are considered de minimis benefits that can be excluded from the employees' wages. So for example if you give your employees a turkey for the holidays, you could deduct the cost as a business expense and the value of the gift would not be includible in the employees' income for tax purposes.
But the IRS points out that cash and cash equivalent fringe benefits, such as gift cards, charge cards or credit cards, are never excludable from employees' wages as de minimis benefits, regardless of the amount. So if you give your employees gift cards, the value of the cards would have to be included in the employees' wages as taxable compensation and reported on their W-2s.
Gift certificates would be includible in employees' taxable wages even if the certificates are redeemable only for merchandise that would otherwise be excludible as a de minimis benefit.
Deductions for de minimis gifts of food and drink are not subject to the 50% limit on deductions for business meals. So holiday parties at work would generally be a fully deductible expense for your business.
If you pay your employees a holiday bonus, the bonuses would be a tax-deductible business expense and would be taxable compensation for the employees. The bonus would be subject to FICA tax and federal income tax withholding, generally at a rate of 25% since a bonus is considered supplemental compensation.
Discounts you provide to your employees on goods or services that you offer customers in the ordinary course of your line of business are excludable from the employees' taxable wages up to certain limits. For services, a discount of up to 20% of the price you charge customers can be excluded from the employees' taxable wages. For merchandise, you can exclude a discount of up to the amount of your gross profit percentage on sales to customers.
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