Giving employees tickets to an event is a great holiday reward – and may be tax deductible as a business entertainment expense.
Shiny lights, beautiful decorations, and cheerful music on the radio can only mean one thing – the holidays are here. If you’re one of the many self-employed small business owners out there who has employees, you just might be in a giving mood. So, what can you do to reward your employees for all the hard work they did for you this year? Here are some options:
Give them tax-deductible gifts.
Business gifts that are given to employees can be written off as a deductible business expense. But remember that the IRS has an amount limit to this deduction. A maximum of $25 can be written off as a business expense for each gift given to each individual every year. So if small business owners give holiday gifts to their employees valued at or below the $25 threshold, the entire purchase price of these gifts can be deducted. But any amount in excess of this $25 limit is not deductible.
Since small business owners can deduct up to 50% of business-related entertainment costs, gifts can be included in this category. So if you give an employee tickets to a football game or a cruise to the Caribbean, you could lump these costs into the meals and entertainment deduction, meaning you may enjoy more tax savings.
Celebrate with a tax-deductible office party.
Take advantage of the meals and entertainment deduction to reward your employees with a holiday party. This could be held right in your office, at your home, or at a restaurant. Regardless of the location, you should be able to deduct a good portion of the money you spend on any end-of-year festivities. Generally speaking, 50% of business-related meals and entertainment can be deducted on your return. However, an event like a holiday party that is held for the benefit of all employees in a business may be eligible for a 100% tax deduction. This means the cost of renting a banquet hall, food, and drinks could all be written off.
Give them a holiday bonus.
Who doesn’t like to receive a nice holiday bonus check? In terms of taxes, bonuses are classified by the IRS as supplemental wages. What this means is that they are treated a bit differently than regular income. Supplemental wages are defined as compensation paid in addition to an employee’s regular wages.
The two ways by which holiday bonuses are taxed include:
- The Percentage Method: The IRS taxes any bonus income at a flat rate – usually 25%. In essence, this bonus income is singled out and taxed separately compared to other income that an employee brings in within a given tax year.
- The Aggregate Method: This method is used when an employer adds the amount of a bonus payment to an employee’s most recent paycheck. The employer then determines the normal tax withholding based on current IRS income tax rates to come up with the sum of both amounts, subtracts what was already withheld from an employee’s last paycheck, and then withholds the rest from the bonus amount.
Give them some extra and much-appreciated time off.
The gift of time off is never a bad idea, especially around the holidays. If you’ve made your employees work during the holidays in the past, consider giving them a few additional days to spend time with family and friends. Many people travel to visit loved ones, and they need those extra few days to get from Point A to Point B – and back. Plus, with some rest and relaxation, both employees and small business owners will come back rejuvenated and feeling more motivated.
For all of your small business accounting needs, turn to the tax experts at 1-800Accountant. Call 1-800-222-6868 or visit www.1-800Accountant.
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