Now that Thanksgiving is over, we find ourselves in the full swing of the holidays. Many businesses are giving their employees a holiday bonus or planning celebratory parties for their workforce and may be including clients or customers. Tis the season! However, before getting caught up in the festivities, it’s important to know the tax implications of company gift giving and events.
Bonuses, Awards, or Gifts: Whether you are the business owner giving the bonus or award, or you are the one receiving it, there are some guidelines to remember.
Monetary prizes, awards, bonuses, and gift certificates given from an employer to an employee are generally considered taxable compensation.
Prizes, bonuses, and awards that involve goods or services, such as a trip/vacation for a meeting a sales goal, also generally result in taxable income.
Awards and gifts of minimal value, such as a holiday turkey, generally fall under the IRS’s de minimis rule and are not taxable. The IRS may allow up to a $25 annual deduction for the cost of business gifts given directly or indirectly to each person during the tax year.
If an item given as a gift could be considered entertainment; for example, concert tickets; the IRS will consider this entertainment and it cannot be deducted.
Holiday Parties and Entertaining: The Tax Cuts and Jobs Act which went into effect in 2018 changed some of the deductions companies can make for meals and entertaining. Most importantly, entertaining clients at sporting events, concerts, etc. is not deductible.
Business Meals with a Client: A meal taken with a customer or client can be 50% deductible if the primary purpose of the activity was business.
Office Snacks and Meals: Perhaps you provide coffee and donuts at a staff meeting, or order in pizza or sandwiches if staff needs to work overtime. In this case, as long as this is small and infrequent, it may qualify under the IRS’s de minimis rule, and is not considered taxable compensation to the employee and the employer can deduct 100% of the cost.
Company-Wide Office Party: If the office party is for the benefit of all employees, then the cost is 100% deductible. Their families may also be included but if customers or clients attend, then it may only be partially deductible.
As always, accurate record keeping is key. Please reach out to your accounting professional at Zinman & Company for more information, clarification, or with any questions.