Spreading the Cheer: Client and Employee Gifts

As the holiday season approaches, many businesses look for ways to show their appreciation to employees and clients. However, it’s crucial to understand the tax implications associated with these acts of generosity.

Gifts to clients are a common practice, often seen as a token of appreciation for their loyalty and partnership. The IRS allows businesses to deduct up to $25 per client per year for these gifts. Anything above this limit is not tax-deductible. Therefore, effective bookkeeping is essential to accurately track these expenses [1].

Gifts to employees fall under a different tax category. Non-cash gifts valued at $100 or less per employee are considered “de minimis” and are generally non-taxable. De Minimis means that the gift is categorized as trivial or of little importance. The amounts spent per employee on gifts as well as the frequency in which gifts are given are insignificant and not considered taxable, and therefore are deductible to your business at tax time.

However, cash gifts or gift cards are usually taxable. It's crucial to consult with a CPA or tax professional to navigate these rules effectively.

Holiday parties are another way businesses show appreciation during the festive season. These parties are entirely tax-deductible as they are employee appreciation events.

In conclusion, holiday gifting can be a win-win situation for businesses - a way to express gratitude and receive a potential tax write-off. As with all business expenses, maintaining meticulous records is key to ensuring you can claim all eligible deductions. Using a reliable bookkeeping service can help streamline this process, ultimately keeping your holiday spending in check.

[1] https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits

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