The first step is to determine what type of gift you are making or receiving and if you qualify for a tax-exempt gift or a tax-deductible gift. At this time of year, it is common for companies to give thank you gifts to customers, employees, and other business entities and associates. This time of year, your company may want to express its appreciation to employees and customers by giving them holiday gifts or hosting holiday parties after skipping them due to the pandemic. Christmas turkeys, hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost products are common examples.
As with most tax deductions, keeping track of what you purchased, how much you paid, and the business purpose of the donation is key to ensuring you receive your deduction. The best gift you can give to yourself or your business this year is quality service from a reputable tax professional. In some situations related to the gift of tickets for sporting events or other events, the taxpayer may choose whether to claim the deduction as a gift or as entertainment. Having to pay additional taxes (or even penalties) for deducting a gift you shouldn't have could be problematic and even lead to long-term tax debt problems.
If you choose to give cash, gift cards or similar items as a holiday gift to employees, the value would be considered salary or additional salary and would be taxable. So, there's probably no need to worry about having to pay a gift tax on your family's Christmas gifts. Small businesses and individuals can also get a small amount of tax relief by donating to charities or giving gifts to employees. A gift tax is something that the IRS imposes when you transfer money or property to another person.
Once the gift exceeds the annual or lifetime exclusion, the donor must file tax forms that disclose the amount of the donations. However, tax authorities view cash (or cash equivalents, such as gift certificates) differently.
