Gifts and Taxes

Gifts cards, cash, employee discounts and inventory are always taxable to the employee.

• One $25 business gift deduction per year per recipient is not included in pay as a bonus. This can be for employees or outside of business.
• Exception: gift amount is not limited if giving a gift that benefits a company as a whole, such as sending a fruit basket to a Client or Supplier, and not just a specific person.
• Inventory and discounts gifted to the employee are considered Bonuses and are not limited to the $25 gift deduction, but must be run as part of their pay with applicable taxes. 

Entertainment – Gifting tickets to an event. If the client attends with the receiver of the gift, it is an entertainment expense (non-deductible). If the receiver can do what they want with the tickets, then it’s a gift subject to the $25 limitation.

Partnerships and Married Taxpayers – Partners in a partnership and married taxpayers are treated as one taxpayer for business gift deductions. If Partner A gives a $25 gift to Client A, Partner B cannot give another $25 gift to Client A and have it be deductible.

Suggestions:Consider possible alternatives to gift giving that could be tax deductible or prevent overpaying taxes:

• Donate to a charity on behalf of someone else. Note: Single Member LLC’s and Sole Proprietors can only deduct Charitable Contributions on their individual return if itemizing. 
• Give the same small gift(s) to every employee (de minimis fringe benefit)
• Gift paid time off (a paycheck with regular taxes and no work for the day!)