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A Guide to Business Tax Breaks During the Holidays

A businessman speaking on the phone with a client

Did you know that around 729 billion dollars are spent in the US during the holidays? These numbers should not surprise you, considering how many people you account for in your holiday budget.

As a business owner, you probably have employees and customers on your list. This is the best time of the year to show your gratitude and keep them motivated to continue working with you.

You don’t have to skyrocket your business expenditure to keep up with these holiday expenses, thanks to business tax breaks.

By learning what can be considered a business deduction, you can use them and reduce taxable income without eliminating any holiday traditions. Read on for more information on business tax benefits over the holidays.

Give Holiday Gifts to Customers

Giving holiday gifts to customers and clients is a common holiday tradition that can yield tax savings. The more clients you have, the higher the tax savings.

However, remember that there is a deduction limit of $25 per tax year. Gifts that exceed that amount do not qualify for the tax deduction. Moreover, $25 is the annual limit for the whole tax year.

Therefore, if you already spend the full amount on another gift in the same tax year, there are no further deductions for the same individual.

This $25 limit for gifts only applies to individuals. There is no limit on the total amount that you can spend on a company.

For instance, you can spend a common gift for all members to share. Nevertheless, the price has to be reasonable.

Gifting Employees

Any gift you give your employees is included in their taxable income and thus subject to the payroll taxes you deduct. This is with an exemption of “de minimis fringe benefits.”

“De minimis fringe benefits” are services or products with a value so small that it is unreasonable or impractical to account for them.

The US department of treasury gives examples of gifts that are de minimis and those that are not to ensure that there is no confusion.

Examples of de minimis fringe benefits are:

  • Occasional group meals and cocktail parties
  • Traditional holiday and birthday gifts. These must not be cash but property of low market value.
  • Local telephone calls
  • Tickets for sporting and theater events
  • Small gifts such as books, flowers, or fruits given under special circumstances

Non-excludable benefits include:

  • A vehicle given for commuting purposes for more than a day
  •  Season tickets to sporting events
  • Membership in an athletic facility or private country club
  • Use of employer-owned facilities such as boats, or apartments among others

Hold a Holiday Party

Don’t withdraw from holiday parties since their expenses are fully deductible. You can welcome employees with their spouses and still get a full deduction.

Nevertheless, avoid any extravagant expenses at the party that may attract the attention of the IRS.

In case you intend to invite other clients from outside, ensure that these are not people outside the company.

This could go against the IRS tax rules on entertainment and meals. If you host other clients from outside the company at this party, you will only have a 50% deduction of what they spend.

However, you will need to prove that the party had a business agenda to get this waiver. Therefore, to avoid these extra expenses, stick to your employees and their spouses.

Invite Clients to a Holiday Lunch

If you did not have a chance to invite your clients to the business holiday party, you could plan a holiday lunch for them. Like in the case of the holiday party, you shall have a 50% of the actual cost.

Additionally, the lunch you have should involve discussions about the business, such as record-keeping plans for the coming year. To reduce the expenses you incur in this holiday lunch, try reducing traveling distance to reduce traveling costs.

Give Donations

Any donations that you give during the holidays can count as holiday expense deductions. However, ensure that you give these deductions are made to a qualified non-profitable organization.

You can also receive a deduction of the costs of supplies used during the deductions.

Ensure that you have clear records of your volunteer work. Some of these records to preserve include bank record statements, purchase receipts, and written documents.

This will help prove that you gave these donations and deserve the donations. Rules that govern tax deductions on donations are:

Donation of property: Any property you donate to a charitable organization is evaluated using the market value.

Volunteering services: Since it is impossible to calculate the service’s value, they deduct any costs incurred during the work. These are costs such as supplies and fundraising parties, among others.

Cash donations: These donations are deductible if they were not sent to a specific person but a known charity organization.

Travel During the Business Tax Breaks

Traveling during the holidays is not only fun but also tax-deductible. Some of these travel expenses that you can incur and be 100% deductible are rental cars, hotel, lodging, baggage fees, and taxis.

It is okay to combine business and pleasure during these travels as long as the business is the trip’s main purpose. In case your family comes along, only your expenses are deductible.

You could take advantage of these travel deductions to hold annual company meetings or visit a client. This helps you boost the employee’s morale and strengthen your relationship with your clients.

Additionally, you could attend a workshop or conference where you can find out more about the issues related to your business, such as tax planning, among others. Sending several employees from your business to such conferences is also a good idea.

Are There Tax Breaks You Could Be Overlooking During the Holidays?

It is safe to say that you can greatly reduce taxable profit in your business by taking advantage of business tax breaks.

These deductions also yield personal benefits, especially around the holidays when expenditure is almost at its peak.

Reach out to us in case of any more questions on holiday tax breaks and any CPA services.


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