Employee and Client Christmas Gifts Can Be Deductible
As a company owner, you may be thinking of giving out employee and client Christmas gifts. Good for you – it’s a giving time of year! And the good news is, if you follow certain Internal Revenue Service rules, those gifts can be tax-deductible.
After all, what would a holiday be without IRS rules?
You can give your employees gifts valued at $25 or less – what IRS calls de minimis gifts. De minimis means essentially too small or trivial to be counted. Things like a holiday turkey, candy, gift baskets or something similar are considered de minimis if the value is $25 or less. De minimis gifts are fully tax-deductible for the employer, and employees don’t have to pay tax on them, either.
If you give out cash, though, it has to be taxed as wages, even if it’s less than $25. Employees also have to claim the cash as income on their tax returns. The IRS considers gift cards the same as cash, so they, too, get taxed.
The de minimis rules apply to individual client gifts as well. That is, they’re deductible as long as they cost $25 or less. The IRS doesn’t include incidental costs, like engraving or gift wrapping, in the $25 limit, though. You can spend more than $25 if you want, but only the first $25 per gift is deductible.
If you want to send a gift is to an entire company, you can spend more. How much can you lay out? The IRS says the cost has to be “reasonable,” but doesn’t say what that is. Apparently you have to wait until the tax audit to find out.
And what about swag? If you give out small gifts branded with your company logo, those are completely tax deductible. That could be pens with your name on them, or a calendar. You have to distribute them on a large scale (you get to deduct the whole cost of what it takes to produce them), and they have to be under $4 apiece.
Apparently even the Tax Grinch likes a party! Holiday parties are completely deductible, but they have to be for the entire staff. You can invite their families, too, if you want. But if you invite customers as well, the deductible amount goes down.
This link goes over the IRS rules on de minimis benefits.
Accountants are Christmas party animals – check out our last year’s celebration.
Lastly, you can learn more about our services here!