Tax Write-offs You Can Take Around the HolidaysNov 25, 2022
The holidays are a time for giving, and business owners can take advantage of some great tax deductions by giving this holiday season! There are many expenses that can be written off, from business gifts to charitable donations to holiday parties. And don't forget about deducting business meals at restaurants – those are still 100% deductible. This article will review some of the best ways to give generously and still receive a nice tax break.
First, you can send gifts to colleagues, customers and valuable contacts in your business. There is a (in my opinion, way too low) limit of $25 per person per year for business gifts. However, if you send branded items (e.g., a YETI mug, shirt, notebook, etc. with your logo), you can consider this a marketing expense. Make sure to keep business gifts reasonable and not too extravagant.
You can also make charitable donations to qualified organizations and deduct them on your taxes. This includes donations of money or property. If you donate property, such as a car, you can deduct the fair market value of the item at the time of donation. And if you donate appreciated securities, you can deduct the full market value of the securities and avoid paying capital gains tax on the appreciation.
Charitable deductions are part of your personal itemized deductions on Schedule A and are typically not deductible for businesses. However, if you sponsor a charitable event or receive something in return for your funds, this could be considered an advertising expense or another business expense. Also remember that you cannot deduct the value of your time. Simply giving free services or volunteering does not result in a tax deduction equal to its value. You can, however, deduct the miles driven for charitable events and volunteering. Just make sure to keep a mileage log.
Another great way to reduce your taxable income is by hosting a holiday party for your employees or clients. Just remember that not all expenses are 100% deductible. You can deduct the cost of food, drinks, and the venue so long as everyone in attendance is an employee or member of their family. Just be sure that the primary purpose of the party is business-related. If contractors are present, then 50% of their costs are deductible. This can get complicated at times, so it is best to plan your party guest list and make note of who is an employee and who is not, and review this with your tax advisor. Remember that entertainment is not deductible, so tickets to the Nutcracker or the Rockettes won't help your bottom line.
You can also give to your employees in the form of bonuses. Bonuses are 100% deductible, but there are some rules you need to follow. First, the bonus must be paid by December 31st and reported on their W-2 for that tax year. The bonus must also be reasonable. A good rule of thumb is to compare it to bonuses given by other businesses in your industry.
So don't be a Scrooge this holiday season! There are many ways to give and still get a nice tax deduction. Just make sure to consult with your accountant or tax advisor to ensure you are taking advantage of all the deductions available to you.