Tis the Season – it’s time for being generous to your employees and clients and customers, to show your appreciation and to share in the spirit of the holiday season. I sometimes think that the benefit of this gift giving should be derived from the act of giving and the accompanying feeling of satisfaction that should accompany it. However, the soaring cost of being in business makes it important to take advantage of every business deduction available to a business owner.
So exactly how much of a business owner’s gift giving is tax deductible?
This answer is actually pretty clear cut. The limit on tax deductible gifts per person is $25. If there is engraving or personalization of any kind this is not generally included in the $25. deductible limit.
So you might be thinking but what about my key employees? I generally give them a cash bonus for a holiday gift that’s greater than $25. Are you saying that’s not deductible?
This answer is somewhat annoying for both the employer and the employee when you consider we’re discussing gift giving, but the answer is that the cash bonus is to be included in the gross wages of the employee and it is taxable the same as their earned gross wages. So how does that scenario play out for the employer and the employee?
A simplified example is as follows:
Employer gives bonus to employee of $500.
Employer must deduct all applicable payroll taxes such as FICA, MC, Federal Withholding, State Withholding, Local Withholding, Etc.
Employee’s Bonus is now $500 minus Taxes at their applicable rates.
The Employer is also subject to the applicable taxes on Payroll and the full amount is deductible as gross employee wages.
Yes it is annoying, but I guess the best way to think about this is that it is first and foremost a gift and if you are the recipient even if your holiday bonus of $500 actually equates to $450 after taxes are withheld, it’s still $450 that you have received as a beautiful gift. If you are the employer your gift of $500 is actually $500 plus the cost of the associated payroll taxes but your employees are worth it. They are after all the crew that keeps the ship afloat.
And one last thing about those $25 client/customer gifts – make them as special as you can for the allowable deductible cost. There’s no better time than the sparkling holiday season to show people how much you appreciate their loyalty.
A gift, is a gift, is a gift. Give them happily, receive them graciously, and be grateful for the opportunity to give and to receive.
And if you need to find some holiday inspiration this season take a peek at this collection of short stories, poems and quotes about our American holidays.
An American Holiday Patchwork - A Heartwarming Collection of Short Stories and Poems and Quotes
And if you're looking for a special gift for a special Tax Preparer this mug carries a terrific sentiment your tax professional will love - Tax Preparers Rock
Here's a Gift Idea for your Favorite Tax Preparer
I hope you're enjoying Tax Facts on the Taxing Subject of Taxes!
Any U.S. tax advice contained in this electronic communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law or regulation.
Content of this site is not intended to replace professional consultation.