Tax Tip from the week of December 26, 2005
Business Gifts: Know the tax rules
The
end of the year is a traditional time for business gift giving. Companies like to say thank you to customers, suppliers, and
employees, and show their appreciation for the business relationship. Each business makes its own decision on who should receive
a gift and how much to spend. But the IRS has a separate set of rules on how you must treat gifts for tax purposes.
Gifts
to non-employees
In general, you can deduct up to $25 of the total cost of business gifts you give to any person in any
year. You may choose to spend more than that, but only the first $25 is deductible.
There are some exceptions. The
cost of gift wrap or engraving isn’t included in the $25 limit. And if you hand out low-cost (less than $4) pens or
other promotional items engraved with your company name, they’re fully deductible.
Sometimes you might give tickets
to the theater or a sporting event. You can treat these as business gifts or entertainment, depending on the particular circumstances.
Gifts
to employees
If you give your employees food or other noncash items of nominal value, you can deduct the cost and it is
not considered income to the employees. But gifts of cash, gift certificates, or gifts given only to senior managers count
as bonuses. The company can deduct the expense, but you must include the value as taxable compensation for the employees.
Please
contact our office if your have questions about your gift-giving plans.
Seattle Bellevue Tax Accountants
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