Never before has it been so hard to retain workers. There are too many positions that need to be filled and not enough people looking to work to fill them. The holidays are a perfect time to say “thank you” to all your hard workers who show up every day and give your organization 100%. Bonuses and gifts not only leave a good impression on your employees; they provide you with the satisfaction of giving. There are specific rules about what you can write off and what you can’t. Knowing what they are can help you not only spread the love, but also to spend less!

The Rules

Currently, the tax rules severely Limit what you can and can’t write off. In general, there is a $25 per person limit on gift-giving write-offs that dates back to 1962 in the tax code. In today’s world, that is not only insignificant; it is very unhelpful for small business owners looking to be generous and give back. The good news is that there are exceptions to the rule if you know how to work around it.

Exceptions to the $25 Limit

Gifts to a Business Entity

There is a $25 limit when gift-giving to an individual, but when the gift goes to a company and is intended to use for their business, that limitation does not apply. An example would be if you gave a company an iPad to make their inventory tracking easier on-site. The entire cost of the iPad would be deductible because it is meant to be used by everyone in the company.

Incidental Costs of Making a Gift

When there are costs related to making a gift, the limitation does not apply. An example would be if you had a plaque custom engraved, wrapped, and then shipped out; you could then deduct more than the $25 limit for the gift itself.

Gifts to Married Individuals

If you gift-give to your employees and their spouses, then the deductible can be $50, or $25 per individual.

Entertainment Expenses Versus Gifts

If you give your employees something like tickets to an event or a sports game, then you do have the choice to either expense it as a gift or an entertainment expense. Currently, entertainment expenses can be deducted as much as 50% of the cost, so there are times when choosing the entertainment expense will benefit you.

Be generous, but also be smart. The holidays are a great time to give back to the people who work in your organization and to promote loyalty all year long. The bad news is that the limitation of the $25 deductible per employee is still in effect. The good news is that what you will gain from the exchange is much more valuable than a tax write-off.

The tax code can be confusing and as we head into the next year, it is important to get your tax information together for tax season. At Current Accounting, we are here to help walk you through the complexity of gift-giving or any other work-related tax situation you might encounter. Contact our company for accounting in Mt. Pleasant and let us maximize your savings -both for the here and now, and for the year ahead.