At some point in running or working in a business, you have most likely asked yourself, “are gifts tax deductible?” Showing kindness to employees helps to build strong morale within a company and motivates teams to work hard and accomplish goals with employee perks. Depending on the size of your team it can be quite costly to purchase office gifts, but what if these gifts could be included in your annual tax deductions list or were considered tax write offs? Take a coffee break and learn how to know are gifts tax deductible for your business.
How To Know Are Gifts Tax Deductible For Your Business
Are gifts tax deductible over a certain value threshold? Sort of! Office gifts and employee perks vary based on business type and, ultimately, the business owner. Whether you own and operate your own business or want to give a token of appreciation to your team members as a team leader, there are some things you need to know about tax deductions and its relation to office gifts.
Team Member Gifts
When purchasing a gift(s) for an employee, ask yourself these questions:
- Will this gift be taxable to my employee?
- Can this gift be considered as a business expense?
The form and value of the gift you choose to give your employee will determine the answer to these questions. Gifts considered to taxable income to the employee are required to have federal and state income and payroll taxes withheld as the employer. Employment taxes, as well as federal and state unemployment taxes, must be paid on these amounts also.
Gifts such as snacks, doughnuts, coffee, concert/event tickets (sports included), birthday, or holiday gifts that have a low fair market value will not be considered taxable income to employees. These are considered fringe benefits (too small to make accounting for it). However, no maximum dollar amount is specified by the IRS for excluding these types of fringe benefits from the taxable income of an employee, but no more than $25 of a gift can be deducted to any one person each year.
Ex: If you give an employee a gift that amounts to $100, you will only be able to claim $25 of that gift as a tax-deductible business expense.
These types of gifts are considered taxable income to employees since they basically can be used just like cash. The expense of this gift is fully deductible to the business, however, you will be required to withhold taxes from the employee’s pay.
Awards given to employees are not taxable income but should be limited. A deduction of up to $400 for the employee’s safety and/or service awards of tangible (personal) property can be taken each year by the employer for each employee.
Note: Service awards cannot be given to employees during their first five years of employment and no more often than every five years. Furthermore, you are not allowed to give safety awards to more than 10% of employees in the same year.
According to The Tax Cuts and Jobs Act of 2017, the following gifts cannot be included as tangible personal property:
- Cash, gift cards, equivalents of cash, meals, vacations, lodging, sports tickets, theater tickets, bonds, stocks, or similar investments.
Keep Records of Your Gifts
The rule of thumb as a business owner is to always keep organized records of purchases, the amount you paid for gifts, and the purpose of the gift as it relates to your business. Having this documentation on hand will ensure that you get tax deductions for office gifts.
If you need additional time to gather your documents or file taxes for your business, easily file a tax extension with ExpressExtension. We provide information on how to quickly apply for an extension of time to file your Individual, Business, and Exempt Organization Income Tax Returns. The IRS doesn’t require a reason to extend, and it’s automatic! Create an account to today to prepare for your annual tax filings.