Are business gifts and awards tax deductible?

Many entrepreneurs and small businesses are not aware of the tax implications of gifts given to employees, customers and business associates or awards given to employees. There are some specific limits and rules around gifts and awards that you should understand. First, you can deduct gifts to customers, clients and business associates, but you are limited to $25 per recipient per year. That’s really a low amount. This limit was set in 1954, when gas was 25 cents a gallon, and has never changed. Try sending flowers or a fruit basket for less than $40! (It may be time for a new tax act to change this rule.)  You are allowed to deduct the cost of engraving, packaging and mailing the gift separately, provided the added cost is incidental to the gift itself. When you give a customer tickets to a football game, a concert, a play, etc., the IRS says you can treat it either as a gift or as entertainment expense, which is 50% deductible. In most cases, with the high cost of sporting and arts events, it will usually make more sense to call these expenses “entertainment” rather than gifts.

Can you combine limits?

With this low limit on business gifts, you might try to get around it by combining limits of your client, their spouse, their children, etc. However, the IRS considers married couples to have one $25 limit between the two of them. You can have a separate limit for the client’s child if you have a real business relationship just with that child. This assertion might not fly if you’re giving a small child a nice bottle of French Bordeaux. The gift must be appropriate for the recipient. The IRS does not let you combine your limit with your spouse’s limit for the same individual, even if you both have real business relationships, separate from one another, with the same person. They just don’t want you to go over that $25 limit!

Gifts to employees or co-workers

Now, let’s talk about gifts to your employees or co-workers. Low-value gifts to employees are fully deductible. What’s a low value gift exactly? This is not defined in the tax code, so it’s really up to you and your tax/legal team to decide. The most popular gift to employees is cash or gift cards. They are perfect for any occasion! But as employee gifts, cash, gift cards and other cash equivalents are considered taxable compensation to be included on the employee’s W-2. So maybe gift cards are not the perfect gift after all. Achievement awards to employees are not treated as gifts or taxable income. If the achievement award is $400 or less, is presented to employees at a “meaningful presentation”, and is not cash, gift cards, securities, or other cash equivalents, it is deductible in full and not taxable to the employee. If your business has a documented qualified employee achievement award program that does not discriminate in favor of highly compensated employees, you can give out fully deductible achievement awards of up to $1,600 per year per person,  but the gifts cannot be cash or cash equivalents.

Say no to gifts to officials

What about gifts to police officers, regulatory inspectors, and government officials? (Whoa, just typing that made me feel all queasy inside.) You need to steer clear of these types of gifts, which may be considered bribes. Obviously, bribery is illegal in the U.S., as it is in most countries around the world. However, bribes are commonly used in some places to help “grease the wheels”, to secure approvals, and to win contracts.  As a U.S. company doing business in another country, you are prohibited from bribing by the Foreign Corrupt Practices Act (FCPA), which carries stiff monetary penalties and/or jail time for those found guilty. Anything that could be construed as a bribe, including trips, accommodations, etc., as well as cash, is subject to the FCPA as circumstances dictate. So if you paid for the Defense Minister of Country X’s spouse to go to fashion week in New York City, complete with prime tickets to her favorite designers’ shows, and within a few weeks your company sold Country X’s military a large order of insect repellent, you may get a visit from the U.S. Department of Justice. Consult with an attorney if you’re still thinking about using this tactic. I’ll say it, even though it should go without saying, that bribes, and the associated fines from the U.S. government, are not deductible.
In summary, deductions for gifts to customers, clients, and business associates are limited to $25 per person per year. Gifts to employees do not have a limit but they must be “reasonable”. If cash or cash equivalents are given, they must be reported as compensation and taxed, in order to be deductible. Certain employee award programs have higher limits for gifts, but require other compliance measures. As is usually the case, documentation is your friend when it comes to deducting gift expenses.

DiRenzo & Bomier, LLC welcomes new Attorney, Mary Stahler

DiRenzo & Bomier, LLC is pleased to announce the addition of Mary Stahler.  Mary is joining the firm after recently graduating from the top of her class at Valparaiso University Law School.  Mary’s primary practice areas will include trusts, estates, real estate, and business transactions.

Travel & Entertainment: Is the Company Holiday Party Tax Deductible?

Company picnics, parties and other events can be tax deductible, provided you have good documentation and understanding of the rules for tax deductible expenses.
Companies throw parties for different reasons. Sometimes it is primarily as a morale booster for employees or as a team building exercise. Sometimes spouses and family are invited and sometimes they are not. Customers, clients and other business associates are sometimes invited to company parties and events as well. Companies sometimes host parties just for customers, business associates and the employees who interact with them.
In order to determine how picnic/party/event expenses need to be treated, you have to determine what the purpose of the event is and who actually attends.  Do you know what you can deduct from your taxes?

What is deductible?

• Costs for your employees are 100% deductible
• Costs for the general public to attend (i.e., a blanket invitation to the community) are 100% deductible
• Costs for spouses, plus-ones and family members of employees are 100% deductible
• Costs of business associates and customers attending are either not deductible at all or 50% deductible
• Costs of friends who attend are not deductible

Parties that include business associates and/or customers and clients are only deductible if there is a short business presentation or announcement at the party. It helps to document this presentation in the agenda or invitation for the party. Minus this formal announcement, attendees who are not employees or associated with an employee are considered to be at the party as friends and therefore not deductible.
You should have a method of checking in attendees to your company event, especially if there will be a mixture of employees and others at the event. This could be as simple as writing down who was there, for small gatherings, or as complicated as having name tags with electronically collectible information for very large events. Either way, you will have a record of who was at the event and their relationship to the company.
For most picnics and parties, it is easiest to divide up the average cost per attendee and allocate it to each group (employees and their plus-ones, business associates, friends) pro rata. However, if you have direct cost information especially for major costs, use it accordingly.
What if you have your event at the country club? Can you deduct your membership fees? The answer is no,  but you can deduct any costs directly associated with the party itself.

Are the costs of an event taxable to the employee?

They can be if the event is only open to certain employees as a reward, involves travel and the cost is high. Otherwise, parties, picnics and the like for employees are considered de minimus benefits that are not taxable. If you include costs of the event in the employee’s W-2 for an event that is really an incentive award, you can take all of the cost as a business expense.

Read more on this topic

Search for Pub. 463 at irs.gov under IRS Forms and Publications.

Wisconsin Access to Justice Commission Highlights Meghan Healy in its Pro Bono Spotlight

“My parents. Definitely, my parents,” responded Attorney Meghan Healy when asked what prompted her to become a volunteer in numerous social justice organizations. Meghan, her father Howard Healy and sister Kathleen Healy all practice with Di Renzo & Bomier in Neenah and all have volunteered for the Winnebago County Legal Clinic since its inception in 2008. The clinic is held at three locations in the Fox Valley  – Menasha, Oshkosh and Neenah – once a month. Meghan volunteers at the Menasha site.

Meghan’s parents were always involved in community and charitable organizations when she was growing up, and their example taught her the importance of giving back. She also credits the values she learned during her Catholic schooling (from first grade through Marquette Law School). “I feel I would be neglecting my responsibility if I didn’t give something back in whatever way I can,” Meghan said, “and I’m especially happy to be able to do so in the city where I grew up.”

She also credits her firm, Di Renzo & Bomier for supporting her pro bono work. Meghan’s father has done legal work for nonprofits for many years, and the court occasionally calls on lawyers in the firm to accept cases on a pro bono basis. Meghan also provides pro bono representation to residents of the Christine Ann Center, a domestic abuse shelter, in obtaining restraining orders. “I think it helps them in a lot of ways,” she said, “because women and men and children who never would have gone forward with filing a restraining order are now doing so.”

In discussing her work at the legal clinic, Meghan said, “It feels wonderful to know that you have made a difference in someone’s life. You know that if you hadn’t been there, that person’s life could have been much different.” She gave the example of one of her father’s cases that started withhelping a tenant at the legal clinic. The tenant, who didn’t speak English, was facing eviction after a dispute with a landlord about an unresolved mold problem. Without the assistance her father provided, it’s likely the tenant would have been out on the street.

“I think the legal clinic in our area has helped many people, but it’s really just putting a Band-Aid on a bullet wound. There’s a much greater need, and I think we need more lawyers to step up to the plate,” Meghan stated at a public hearing held by the Access to Justice Commission in July 2012. The once-a-month legal clinic in Menasha averages more than 40 attendees seeking advice. “A lot of times I take people’s numbers and call them the next day because you can’t do a lot when you have 15 or 20 minutes with people,” she said.

“Those who go to law school do it because they want to make a difference in people’s lives. What better way to make a difference than to assist someone who needs help but doesn’t have the knowledge or ability to handle it themselves? Each of us should consider it a responsibility to give back where we can.”

Meghan also volunteers for the United Way, Winnebago County Teen Court, the Neenah-Menasha YMCA, and as a mock trial coach at St. Mary Central High School.