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FOR IMMEDIATE RELEASE
Time to Review Tax Deduction Rules for
Business Holiday Gift-giving
Lohman Company Explains What You Can and
Cannot Deduct this Holiday Season
November 20, 2006 --
Bighearted business owners
may find that Uncle Sam won’t be quite as generous during the
holiday gift-giving season.
“Whether
you’re giving or receiving, there are gift-giving rules for
businesses,” said Cati Piorkowski, tax partner at Lohman
Company, PLLC. “Sometimes the gifts are deductible, sometimes a
portion of the gift is deductible and sometimes they’re just not
deductible at all. It’s important to know the difference before
you get into the holiday spirit.”
Piorkowski has seven tips for business owners who plan on
deducting their holiday gift expenses:
-
Employee Gifts -
Turkeys, hams
or other merchandise of nominal value given to employees are
deductible by the employer and not taxable to the employee.
Start giving any amount of cash, gift certificates, bonuses,
or merchandise of value and the treatment changes. The
gifts are still deductible by the employer, but as a
compensation expense rather than as gift expense. The fair
market value of the gift must be included as wages on the
W-2 of the employee and are subject to withholding and
payment of employment taxes.
-
The
Magic Amount: $25
– Business owners can deduct up to $25 in business
gifts to any one individual each year. Anything above this
amount is not deductible. Incidental expenses associated
with gifts, such as mailing and wrapping costs, are not
included in the $25 limitation amount.
Keep in
mind that the $25 deduction applies to gifts throughout the
entire year, not just the holidays.
-
Partnerships and Spouses
- Partnerships and spouses are treated as a single taxpayer
when applying the $25 business gift limitation. Therefore,
the deduction by a partnership, regardless of the number of
partners, is limited to $25 per year, per individual
recipient. Gifts by a husband and wife are aggregated even
if each is engaged in a different business and each has an
independent business connection with the recipient.
-
No Gift
Ceiling -
There
is no ceiling on the deductibility of business gifts made to
a corporation, partnership or other business entity if it is
for the eventual use of any one of a large number of its
employees or customers. If it is reasonably practicable
for the taxpayer to ascertain the ultimate recipient of the
gift, then the $25 annual limitation applies.
-
Indirect Gifts –
You
can't circumvent the $25 limitation by also giving business
gifts to an individual's family members, spouse, or
business. The $25 deduction applies to both indirect and
direct gifts. A gift to a business that is intended for the
personal use or benefit of an employee or owner is
considered a gift to that individual and is limited to the
$25 deduction. The same applies to gifts given to an
individual's spouse or family member when there is not a
separate business connection.
-
Entertainment Expenses –
And there are
always exceptions. Giving the gift of entertainment, such
as sports or theater tickets, is treated differently. If
you attend the event with the gift recipient, then the gift
is considered an entertainment expense and you can deduct 50
percent of the total cost. If you don’t attend the event,
then you may choose whether to treat the expense as a gift
or as an entertainment expense, whichever is to your greater
advantage.
-
Promotional Items –
These items are not treated as gifts. If the item costs $4
or less, has your name clearly and permanently imprinted on
the item and is one of a number of identical items
distributed widely, then you can deduct the cost without
limitation. This includes signs, pens, mouse pads, etc.
Piorkowski advises talking with a professional advisor before
settling on corporate gifts.
About Lohman Company, PLLC
Founded in 2000, Lohman Company, PLLC is a certified public
accounting and business consulting firm offering professional
tax, audit, accounting and consulting services to
privately-owned companies in Arizona with revenues up to $200
million. Lohman Company, PLLC specializes in serving clients in
a wide range of industries including technology, manufacturing,
wholesale distribution, construction, real estate and services.
Lohman Company, PLLC is committed to providing the highest level
of proactive services to its clients within an atmosphere that
encourages camaraderie, intellectual challenge and work-life
balance for all employees.
For More Information Contact:
Lohman Company, PLLC
Stapley Center
1630 South Stapley Drive, Suite 108
Mesa, AZ 85204
Phone: (480) 355-1100
Fax: (480) 355-1130
Internet:
info@lohmancompany.com
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