There is a significant difference between personal gifts and business gifts when considering the tax code. Personal gifts usually remain within a family and have a separate tax code to that of business gifts that go to employees or clients. Both categories have seen several changes over the last year. @918 introduced a new book of tax codes that revolutionized some tax concepts, eliminated others, and expanded only a few.
Business Gifts Deduction
The business gift tax structure changed considerably in the 2018 tax code modification action signed by President Trump. Known as the Tax Cuts and Jobs Act, the legislation eliminated many of the perks used by businesses to entice talent.
- Fringe benefits such as meals and entertainment saw several cuts. Where, in 2017, meals served on the premises of the company were 100% deductible, these meals are now only 50% deductible.
- Businesses that have covered moving expenses, transportation, or onsite gyms find themselves holding the bag as these expenses are no longer legitimate deductible items to include on the year-end tax form.
- Businesses who used entertainment as a recruiting tool or as a reward for service were able to deduct 50% of the cost in 2017 but will no longer find a place on the tax form in which to place those deductions.
- Payments for practices beyond standard “public policy” are no longer deductible. Consequently, expenses such as payments of fines, hush money, or any other practices so abhorrent to the public, are no longer deductible.
The question of “Can you write off employee gifts as a tax deduction” revolves around the issue of value.
- Employees who receive benefits, for which they would generally pay, will find that those benefits are now included as income.
- Commuting to work, the use of bicycles as transportation, and many other formerly tax-deductible items used by the public are no longer deductible.
- Employee gift certificates that exceed $25 are considered income. Employers who provide gift awards must add the gift as income and deduct the proper withholding amount matching the tax status of the employee.
- Monetary certificates or any other gifts that have monetary value are now considered income and subject to income tax if above the $25 limit.
In the end, there are two essential questions for employers when gifting employees:
- First, are these gifts taxable for the employee? If they are taxable, the business must deduct whatever withholding taxes are applicable for the employee’s tax bracket.
- Are the gifts deductible for the employer’s business is the second question. Only the first $25 of gift value per employee is deductible as a business expense, and any more value than that must be recorded as employee income.
The business would be better off to send them some caramel popcorn as a reward. Reporting added income may cause your employee to move into a higher tax bracket. Tasty treats are more palatable than paying extra tax.
Personal Gift Taxes
Successful business owners can divert taxes to family members with lower incomes to minimize the taxes paid on company profits. The process revolves around the principal of personal gift taxes.
- Private gifts are those given between individuals as relationship acknowledgments.
- The gift tax exclusion applies to the giver of the present, not to the recipient.
- Small personal gifts of property are not considered as income by the IRS when given between family members unless you are moving real property (houses, buildings, cars, etc.) between siblings to hide wealth.
In 2018, the gift tax exclusion increased to $15,000, up from the $14,000 the previous year. The question of “Can you get a tax deduction for giving a gift” has a conditional answer of “yes.”
- The provider of a present of up to $15,000 need not pay taxes on the amount or the value gifted.
- The recipient must add the gift to their income tax statement and pay the tax at the level into which the present moves them.
- You can increase your yearly personal gift tax exclusion. When your spouse agrees to give the gift, then the exclusion is doubled.
- Gifts provided to charitable organizations are not subject to a gift tax, nor are donations to colleges or universities for delivering tuition for a family member or protégé.
- The gift giver must file the proper tax forms to validate their use of the personal gift tax exclusion.
Personal gift taxes have two separate formulas.
- The yearly exclusion allowance is the $15,00 per recipient per year.
- There is also a Lifetime exclusion that shelters up to $5.6 million in 2018. If you wish to increase your annual gift toward your family members, anything more than the $15,000 annual exclusion allowance is included in the lifetime exclusion.
Most Americans will never take advantage of either the annual or the lifetime gift tax exclusions. However, businesses that give monetary rewards to their employees for exemplary work must be aware that the new tax law challenges the employee as much as the employer. Though the law was to simplify the tax structure, in reality, it complicated the reward process for everyone.