For example, you can deduct gifts such as a Christmas ham or a gift basket. While donations to employees have their own limitations and can be treated as taxable compensation, the employer can generally deduct the full cost of donations made to employees. Whether it's a gift to thank for being a valued customer or for a vacation, the good news is that donations to customers are tax-deductible, but have limits. Whether in cash, gift cards, or as a token of appreciation, gifts have tax implications that small business owners should consider.
If you decide to give cash, gift cards, or similar items as a holiday gift to employees, the value would be considered an additional salary or salary and would be taxable. If the gift is not taxable for the employee, the gift must be reasonable in order to be deducted as a business expense. Distributing tangible gifts to promote goodwill among your employees during the holiday season may be considered a minimal additional benefit, where the gift is too small for your accounting to be reasonable or practical. If your donation is sent to an entire company, such as a fruit or snack basket sent to a customer or partner organization, the company-wide donation will be considered deductible in any amount, provided it is reasonable.
Before you start asking for gifts for special occasions, thank you or Christmas, make sure you fully understand how the gift will affect your company and your employees' taxes. In some situations related to donating tickets for sporting or other events, the taxpayer can choose between requesting the deduction as a gift or as entertainment. While people would enjoy a tax-deductible charitable contribution for the gift and employees would prefer that the donation not be taxable for them, this type of “double immersion” is not usually the result. Gift cards and gift certificates are considered taxable income for employees because they can basically be used as cash.
There is no set limit for gifts to a company (for example, a gift basket for all members of a customer's team to share) as long as the costs are “reasonable”. Cash gifts and cash equivalents, such as gift cards, are included in the employee's income and are subject to payroll tax withholding, regardless of how small and rare they are.