Holiday Related Business Deductions

Accounting guidelines for holiday parties, gifts, and bonuses

‘Tis the season for giving. During the holidays, many businesses reward their employees’ efforts with holiday parties, gifts, or bonuses. Are you correctly accounting for these expenses? If not, you may be missing out on considerable business deductions. By properly managing your books during this season of giving, it can also be a season of getting.

Holiday business expenses are not like everyday expenses, and therefore require a little more consideration. Follow these general guidelines:

Holiday Parties

How do you account for holiday party expenses? It depends on who’s coming. If only employees and their guests are invited, create a sub-account, Holiday Party, under your General Office Expenses, and post all related expenses there.

If the party includes non-employees (vendors, customers, independent contractors, or the owner’s family and friends), these expenses should be posted to your Meals and Entertainment account.

Of course, you’ll need to calculate the number of employees/guests and non-employees and apply the holiday party expenses (food, entertainment, room rental, etc.) accordingly.

Holiday Gifts

If the gift is not cash or its equivalent (i.e. a gift card), the IRS allows businesses to deduct up to $25.00 per person. Create a sub-account, Employee Gifts, under Meals and Entertainment, for these expenses.

Be sure to inform your employees that non-cash gifts valued over $75.00 are taxable.

Holiday Bonuses

Holiday bonuses should be posted to your regular Payroll account. Bonuses, like paychecks, are subject to taxes. Taxes may be deducted from the employee’s bonus in one of two ways:

Deduct taxes from the bonus, issuing a check for the remaining amount.

“Gross up” the bonus to include the required taxes, issuing a check for the full amount.

NOTE: If you choose to give gift cards instead of bonus checks, these still count as wages and should be included in the employee’s W-2 form.

Accounting and Bookkeeping Services in NH

Want to learn how to get the most out of your holiday giving? Contact the professionals at Fournier Accounting and Bookkeeping Services. We’ll make sure you come out of the holidays happy, and not feeling like you got a lump of coal. Spend less time managing your books and more time making money and serving your customers. We’re here to help you succeed. Contact us today!