'Tis the Season...

….for office parties and gift giving to customers and employees. Because of the abysmal economy, holiday gift giving by companies may not be as generous this year. Regardless, many are not aware of the IRS rules associated with the deductibility of these items. Normally any expense involving food and fun relative to a business (unless it is “de minimus”) is only ½ deductible under the meals and entertainment category. However, the IRS does make an exception when it comes to what may be considered a special event such as a banquet or party. In that case, the expenses relative to that event are 100% deductible. Be smart with this one....taking your employees and customers out to eat routinely is not an “event” and would thus be categorized as meals and entertainment and only ½ deductible.

As far as gifts, your business is limited to $25 per recipient. If you spend more than this on a particular customer for instance, the amount above $25 is considered non-deductible. Nominal gifts to customers and employees such as holiday turkeys and hams are okay and 100% deductible by you because it falls under that “de minimus” category. Be careful with gift certificates. Those are considered cash equivalents and cash and cash equivalents given to employees is considered wages and subject to withholding.