With this time of year comes the spirit of giving. In business, giving usually means in the form of gifts towards employees or clients. There could be some tax implications for this good deed that need to be taken into account. Are these gifts deductible by your business and is the value of the gift taxable to the employees or clients? Below are a few scenarios that your company may come across this season.
Gifts to clients are tax deductible up to $25 per recipient per year, however, there are some exclusions to the $25 limit. Any additional costs that aren’t adding considerable value to the gift should not be deducted. Examples include engraving, gift wrapping, packaging, or shipping. There is no limit on gifts to a company, though the gift must not be excessive.
As for employee gifts, anything of monetary value that is gifted to the employee by the employer is considered taxable income for the employee and deductible by the employer. Noncash gifts are nontaxable if certain criteria are met. These items must be of low value and rarely given out by the employer. Noncash gifts are considered “de minimis” fringe benefits. These items are not taxable for the employee due to the difficulty in accounting for them.
Lastly, what better way to kick off the season than the company holiday party? This allows employees to step away from their desks to network with colleagues within the company with whom they don’t usually have an opportunity to interact. In addition to the benefit of the company’s overall morale, holiday parties are fully deductible given that the guests are predominantly the non-highly compensated employees and their families. It should be noted that holiday parties may only be partially deductible if clients are in attendance or if the event is excludes some employees for any reason. Be sure to keep a copy of the invitation that makes clear all employees are invited if you wish to protect the full deductibility of the costs associated with an employee holiday celebration.
Contact a tax professional if you have any questions regarding spreading good cheer within your business.