Holiday parties and gifts can help show your appreciation

This article organizes the original guidance on holiday parties and gifts can help show your appreciation and provide tax breaks into clear sections for easier reading and reference.

Overview

This opening section presents the main context from the original post.

With the holiday season in full swing, your business may choose to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It’s a good idea to understand the tax rules associated with these expenses.

Are they tax deductible by your business and is the value taxable to the recipients?

Customer and client gifts

This section keeps the original guidance focused on customer and client gifts.

If you make gifts to customers and clients, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you don’t need to include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift wrapping, packaging or shipping.

Also excluded from the $25 limit is branded marketing collateral — such as small items imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (for example, a gift basket for all team members of a customer to share) as long as they’re “reasonable.”

Employee gifts

This section keeps the original guidance focused on employee gifts.

In general, anything of value that you transfer to an employee is included in his or her taxable income (and, therefore, subject to income and payroll taxes) and deductible by your business. But there’s an exception for noncash gifts that constitute a “de minimis” fringe benefit.

These are items small in value and given infrequently that are administratively impracticable to account for. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits aren’t included in your employee’s taxable income yet they’re still deductible by your business. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Important: Cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small and infrequent.

Throwing a holiday party

This section keeps the original guidance focused on throwing a holiday party.

Under the Tax Cuts and Jobs Act, certain deductions for business-related meals were reduced and the deduction for business entertainment was eliminated. However, there’s an exception for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and can be excluded from recipients’ income) so long as they’re primarily for the benefit of non-highly-compensated employees and their families. If customers and others also attend, holiday parties may be partially deductible.

Spread good cheer

This section keeps the original guidance focused on spread good cheer.

Contact us if you have questions about giving holiday gifts to employees or customers or throwing a holiday party. We can explain the tax rules.

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Client Accounting & Advisory Services
• Business Strategy & Growth
• Business Valuation
• Harvard Business Review
• Accounting Today

FAQ

The questions below summarize the main points already covered in the article.

What is the main focus of Holiday parties and gifts can help show your appreciation and provide tax breaks?

The article focuses on holiday parties and gifts can help show your appreciation and provide tax breaks and organizes the original guidance into sections for easier review.

What topics does the article cover first?

The article begins with customer and client gifts and then continues through the remaining points in the original post.

Which additional areas are included?

Additional sections include employee gifts, throwing a holiday party, spread good cheer.

Does the post include action items or reminders?

Yes. The original post includes listed items that have been kept in list format for easier scanning.

Was the original post wording changed?

The revision keeps the author wording and updates the structure so the post is easier to read online.