Know The Rules On Write-offs

Know The Rules On Write Offs

Giving someone the use of property or income from a property may also be considered a gift- as can a loan to someone else with little or no interest required. 

According to the IRS, “the general rule is that any gift is a taxable gift.” However, there are exceptions to this rule, such as:

  • Gifts that are less than the current annual exclusion ($15,000 per gift to each individual in 2021). 

  • Money or property given to a spouse 

  • College tuition paid directly to a school on behalf of another person

  • Medical expenses paid directly to a medical facility for someone’s care

  • Charitable contributions 

For small business owners, these gifts can be important for building rapport, but they also come with possible tax implications. For example, if a gift is considered taxable income to the employee, you’re required to withhold all applicable federal and state income taxes, such as federal and state unemployment tax, on these amounts. 

Gifts of property are not considered taxable income to employees as long as they fall under the definition of a “de minimis fringe benefit to be a gift “for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable and impractical.” 

This might include the occasional snacks, coffee and doughnuts or holiday gifts with a low fair market value, such as flowers, fruit, books, etc. 

The IRS does not specify a maximum dollar amount for excluding de minimis fringe benefits from an employees taxable income, however a business cannot deduct more than $25 of a gift to any one person each year, including employees. So even if you purchase a $100 ticket to a sporting event for your client, only $25 can be deducted. 

However, even though gift cards and gift certificates are considered taxable income to employees because they can deduct the full cost of the gift card– but you must withhold taxes from an employee’s pay for it. 

 

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