Friday, November 28, 2014
The holiday season has just begun, which means it is a time to think about friends, family, good cheer, and of course, the IRS.
Why the IRS? If you run a business and the holidays includes gift giving to employees or customers, you should consider whether these gifts are deductible for the company or taxable for the recipient. As usual, the answer depends. Below is a guide to some of the rules:
- Gifts of minimal value are generally not taxable for employees. Minimal means $25 to $75 per employee each year. Gifts worth more than that are taxable.
- Monetary prizes, including achievement awards, as well as non-monetary bonuses such as vacation trips, are taxable compensation.
- Gifts awarded for length of service or safety achievement are not taxable, so long as they are not cash, gift certificates or points.
- Gifts and awards, regardless of whether they are taxable to the employee, are deductible for expenses for employers.
- Deductions for gifts to customers are limited to $25 in value per person per year, whether given directly to the individual or indirectly to the company, but will eventually be given to the individual. Incidental costs, such as engraving, packaging, insurance and mailing generally do not count against the $25 limit.
See Jonathan Cooke, Follow IRS Rules for Holiday Gift Giving, The Tennessean, Nov. 23, 2014.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.