Giving miscellaneous cash to employees and/or consultants
- Cash often is considered de minimis fringe benefits, so deductible by the payor and excludable from reporting to the recipient.
- This is WRONG, there is no de minimum exception for cash/cash equivalent payments, whither the person is a wage income employee, or if they are a Form 1099 consultant.
Giving out gift cards or holiday turkeys etc
- Employers think that this qualifies for a infrequent minor holiday gift and thus is deductible by the payor and excludable from reporting to the recipient.
- This is WRONG, if the gift card can be used for anything, it is not deductible.
- This is WRONG, even if the gift is restricted according to IRS guidance, UNLESS redeemable for a specified item only (such as one turkey), it is not deductible.
Business gifts (not related to employees, just customers and potentially suppliers)
- The IRS allows your business to deduct up to $25 for business gifts you give to any one person per year. There is no limit on how many people you can give business gifts to during the year, nor on how much you spend for those gifts, although your business gift deduction is limited to $25 per recipient. That means if you give your customer a $100 gift basket, be prepared to settle for a $25 deduction. If, during the course of a year, you give two gifts to a customer – one worth $10 and one worth $15 – you can still claim the maximum $25 deduction.
- You should “split code” to create sub accounts for the deductible amount, and the non-deductible amount.
- Depending on the nature of the item, it may be feasible and more advantageous to classify each expense (such as tickets to a sporting event) as entertainment which is 50% deductible, assuming proper documentation.
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