Startup Tax Tips and Triage – Employee Gifts

Startup CEO: Happy holidays!
Startup Code Head: Thanks, boss. A gift card for $24.99… what gives?
Startup CEO: More than that and you’ll get taxed on it.
Startup Code Head: Who knew? Thanks!
VPTax: Technically, $25 would have been OK. But any more than that and the “gift” turns into taxable compensation. Sure, it’s nice to give. But it’s nicer to understand the implications of your gifts before you give them.

Most gifts are given without strings or expectations and do not compensate for services. But the government sees gifts differently because businesses may have different reasons for giving things away.

Gifts of money include cash, checks, transfers or anything readily converted to money, like gift cards. Property generally refers to assets not readily convertible to cash. There are tax consequences for both, depending on the recipient and the reason.

Taxpayers are allowed to deduct up to $25 for gifts, per recipient per year. Yearly gifts in excess of $25 are another story.

• Gifts of money are fully deductible by the employer, but gifts valued more than $25 (not included in W-2 wages) are not deductible.
• Gifts of property valued less than $25 are deductible by the employer if included in the employee’s W-2. But again, gifts in excess of $25 not included in the employee’s W-2 are not deductible by the employer.
• Property is deductible by the employer and not taxable to the employee if it is of nominal value; meaning that accounting for its cost is impractical, like holiday frozen turkeys and canned hams. Nominal gifts do not include gift cards, which the government considers cash.

The best gift you can give your employees (and your business!) is the gift of knowing the difference. VPTax can help you do just that.

VPTax is a technology company that happens to provide premiere tax support to startup companies. We are veteran tax professionals (Big 4 partners and seasoned VPs and Tax Directors) that serve you on a contract basis that match your needs and budget. VPTax is a better alternative to traditional broad-scope accounting firms. VPTax’s fully managed, proprietary tax solution scales to support companies at every stage of development, from inception through rapid growth to IPO and beyond.