By Benecia Beyer
Generally, business gifts to clients and customers can be deducted against taxable income. But the IRS sets a limit, $25 per client/customer. There is no limit on the number of gifts you can give, only the value. And that $25 limit is per year. It does not include incidental costs such as packaging, insurance, mailing, etc - the IRS says the cost is incidental as long as it doesn't add substantial value to the gift.
When it comes to employees, the IRS looks closely at any and every form of compensation. Some companies reward workers with year-end or holiday bonuses. While employees might view this as a gift, the extra income is taxable compensation. The employer must withhold payroll taxes and the company is entitled to a deduction for the employee pay.
If, to promote employee goodwill, you distribute turkeys, hams or other merchandise of nominal value to your workforce at the holidays, you can deduct the cost of these items as a non-wage business expense. And your workers do not have to report the value of the gift as income.
The key is that the gift meets the IRS' de minimus standard. This means that its value is so low, taking into account how frequently you provide similar benefits to other workers, that accounting for the gift would be unreasonable or administratively impractical.
Cash, however, regardless of how little, is never considered a de minimus benefit.
You can also treat your workers to a holiday buffet and receive a tax gift for your company. The IRS Says that meals you furnish your employees as part of a "recreational or social activity" such as a company picnic or holiday party, are fully deductible.
And unlike usual business situations that involve food and beverages, neither you nor your workers are required to talk about business before, during or after the event.
H A P P Y H O L I D A Y S T O Y O U !
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