Can I Fully Deduct the Cost of Gifts to Employees?

Here are the rules to follow for tax deductible gifts.

Say you want to promote employee goodwill. So, you and your partners give out turkeys and hams over the holiday season. You also decide to give the employees $100 each. Can your partnership deduct the cost of the items given, even though the merchandise isn't wages or salaries? Also, are the gifts subject to withholding?

You can deduct the cost of turkeys, hams, or other tangible gifts you give to employees as long as the value does not exceed $25 per year per employee. They qualify as business expenses, and the gifts aren't taxable to the employees or subject to withholding.

However, cash or cash equivalents, such as gift certificates, are looked at differently through the tax authorities' eyes. You must treat such gifts as additional compensation, no matter what the amount. These gifts are subject to withholding.

Further Reading
Employer's Guide to Unemployment Insurance Tax in California
Updated January 15, 2024
Is an EIN Required for a Sole Proprietor?
Updated July 25, 2022
Top Ten Tax Deductions for Real Estate Pros

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