The holiday season is a time for celebration, appreciation, and, if you’re a business owner, essential tax planning. Whether you’re hosting a festive holiday party or handing out thoughtful employee gifts, knowing what the IRS allows you to deduct can make a big difference when tax season rolls around.
At Burke CPA and Advisors, we help businesses navigate these rules so generosity doesn’t turn into an unexpected tax burden. Here’s what you need to know.
Employee Gifts: Deductible or Not?
1. De Minimis Gifts
Small, infrequent items such as coffee mugs, gift baskets, or company-branded merchandise typically qualify as de minimis fringe benefits, meaning they’re deductible for the business and not taxable to employees.
- Deductible: Holiday turkeys, fruit baskets, event tickets of low value
- Not Deductible: Cash or cash equivalents like gift cards (these are treated as taxable income to the employee)
2. Cash and Gift Cards
The IRS is obvious: cash and gift cards are always considered taxable income. Even a $25 gift card to a coffee shop must be reported as wages on the employee’s W-2.
3. Larger Non-Cash Gifts
Items of significant value, such as electronics, vacations, or jewelry, may be partially deductible but are usually taxable to the employee. Careful documentation is key.
Holiday Parties: Deduction Rules Have Changed
Holiday parties can be a fantastic way to boost morale and celebrate your team’s achievements. But how much of that expense can you write off?
1. 100% Deductible
- Company-wide holiday parties are 100% deductible, as long as they’re open to all employees. This includes food, drinks, entertainment, and venue costs.
2. 50% Deductible
- Meals with only select employees (such as leadership retreats or department dinners) typically fall under the 50% meals deduction rule.
3. Not Deductible
- Extravagant entertainment unrelated to business purposes, or events limited to only top executives, may be non-deductible.
Why This Matters for Your Bottom Line
The difference between a fully deductible company party and one that only qualifies for a 50% deduction could add up to thousands of dollars in lost tax savings. Likewise, treating a gift card as deductible when it’s not could invite IRS scrutiny.
At Burke CPA and Advisors, we don’t just help you comply; we help you maximize your tax benefits while rewarding your team responsibly.
Best Practices for Businesses
- Keep Detailed Records – Save receipts and note the business purpose of each expense.
- Communicate with Employees – Let employees know when gifts are considered taxable income.
- Work with a CPA – Tax law is nuanced, and professional guidance can prevent costly mistakes.
Final Thoughts
Showing appreciation to employees is a wonderful tradition, but it’s even better when done strategically. By understanding the IRS rules on gifts and holiday parties, you can celebrate the season without sacrificing tax savings.
Ready to ensure your holiday generosity pays off? Contact us today to make the most of your employee appreciation efforts.