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Holiday Tax Deductions: Business Gifts

Tis the season of Secret Santas and Holiday Company Parties.

It’s a common tradition among businesses to get in the holiday spirit and give gifts to clients and employees. Even though giving gifts doesn’t typically put the idea of taxes in mind, it’s important to know how to report business gifts as tax deductions.

What are direct gifts versus indirect gifts?

The IRS will give the green light on a tax deduction for two types of gifts; direct and indirect. Don’t worry – this still gives you substantial leeway to choose that perfect gift this year. Direct gifts are given as part of a direct professional relationship. For example, the owner of 123, LLC gifts a Godiva gift basket to each employee for the holidays. Indirect gifts typically involve a middleman, such as sending a gift home for your employee’s child.

Is there a cost limit?

There is a $25 limit per gift, per year. What’s that mean? Well, let’s say that your company likes to give gifts to clients or employees multiple times per year. The deduction would only apply to ONE gift and only $25 of that gift could be deducted.

Keep in mind that the gift CAN cost more but only $25 of the total can be reported as a deduction (so hold onto that ‘#1 BOSS’ title and keep giving your employees those iPad minis).  

Does the cost include incidentals?

Continue reading “Holiday Tax Deductions: Business Gifts”

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When Can I Claim Exempt on My W-4?

Tread carefully before claiming exempt on your W-4 form.

Your W-4 is filed with your employer. Based on a number of allowances and exemptions you claim, your employer will withhold a certain amount of your income from each paycheck to cover taxes owed to the IRS. If you claim EXEMPT on your W-4, it means that no taxes will be taken out of your paycheck throughout the year to cover what you may owe to the IRS. Claiming exempt does not apply to everyone. Let’s find out why.

Am I eligible to claim exempt on my W-4?

If you want to claim exempt on your W-4, both of the following need to be true:

  1. For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability.
  2. For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.

If one or both of these are false, then you will not be eligible to claim exempt on your W-4.

Are there any exceptions?

In some cases, claiming exempt is just not an option. Below are some reasons why it may not be for you:

  • If your income is $950 or more and at least $300 of that is from un-work-related income (ie: interest or dividend income), then you cannot claim exempt from taxes.
  • If you plan to claim dependents on your tax return, then you cannot claim exempt from taxes.
  • If you will be itemizing your deductions on your tax return for the year, then you cannot claim exempt from taxes.
  • If you are Age 65+ or blind, you must use IRS Worksheet 1-3 or 1-4 to determine if you can claim exempt.

I’m EXEMPT for tax purposes. How do I report that?

After doing some research and realizing that you are, in fact, eligible to claim EXEMPT on your W-4, you’ll need to report that. On your W-4, leave box 5 blank. If you have an amount in Box 5, that takes precedence over Box 7. Continue reading “When Can I Claim Exempt on My W-4?”

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Holiday Tax Deductions: Gifts to Charity

It’s almost time to bust out the wrapping paper and tinsel!

Yes, it’s that time of year again. It’s the season of giving. Before you get wrapped up in holiday parties and stocking stuffers, you’ll want to make sure that you’re mind isn’t blurred with visions of sugarplums and too much eggnog.

January marks the start of tax season and we want to make sure that you’re ready. That includes reporting those holiday gifts to charity as tax deductions.

How do I donate?

We tend to think that the only way we can help out in society is by breaking out our checkbooks and tacking on as many zeros as our bank accounts will allow. Money is great. But it’s not the only way. It’s also probably the main reason why the majority of us end up doing nothing. We simply can’t afford to.

Seeing as our daily lives revolve around checking up on ourselves (our bank accounts, our smartphone notifications, our Tinder profiles), it’s easy to forget that taking the time out for others is also considered a charitable donation.

If you can write out a check, then all the more power to you! If you can’t, don’t downgrade the time you can spend helping out at your local soup kitchen or cleaning out your closet to donate those jeans and blazers you never ended up wearing. Your nearest Goodwill or Salvation Army will take them off your hands.

Where should I donate?

The dilemma for some of us is that we don’t know where our hard earned dollars are going when we donate to a charity. We understand! Who wants to spend time researching a reputable charity to support and then not be certain that they are using your money the right way? Continue reading “Holiday Tax Deductions: Gifts to Charity”