Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Good planning can deliver tax gifts to businesses

- by Alan Duvall 

Published in Dayton Daily News   November 19, 2006 

Tis the Holiday Season – a time for business gifts to employees, customers and friends.   

If the present is taxed to the recipient, its cost is deductible to the business.  The trick is to get IRS Santa to give a double benefit of a tax-free gift in conjunction with the company deduction. 

Annual non-cash gifts less than $25 per individual recipient receive the double benefit.  Presumably, gifts this small are simply not worth the Tax Grinch’s attention.   

Social or recreational expenses primarily for the benefit of low-paid employees pocket double benefits. 

Employee achievement awards earn double benefit designation if:  

1. Tangible property (not money, tickets or vacations).  Gift certificates could be deemed money unless non-negotiable rights to tangible property.    AND

2. For length of service over 5 years.  An employee can only receive one such award every 5 years.  OR

3. For safety achievement for any employee not a manager, professional, or administrative personnel. 

Employee achievement awards cannot be “disguised compensation’ and must be presented as part of a “meaningful presentation”. 

Qualified (written, non-discriminatory) achievement awards earn double benefits if each employee receives property of less than $1,600 per year provided total annual awards do not exceed an average of $400 per recipient. 

Non-qualified employee achievement awards likewise generate double benefits provided each employee receives property of no more than $400 per year. 

Because they are non-taxable to employees, employee achievement awards merit special attention.  For instance, it would probably take a $700 cash bonus to equate to a $400 tax-free property award. 

Next year pay raises could also benefit from tax insight.  For example, if employees are currently paying 50% of health care costs consider a raise where the company pays an additional percentage in lieu of wage raises.  Since company health care payments are not subject to FICA, both company and employee alike benefit from fringe benefit increases as opposed to wage hikes. 

Have a great Holiday Season and with proper planning IRS Santa will help pay for the presents. 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.