“Y” is for yuletide.  Yuletide basically just refers to Christmas in the United States and that means a time for gifts.  If you want to start shopping now for your favorite accountant, I like gummy bears, things that are orange and tickets to sporting events.  As long as you keep your gifts under $14,000 for the year you won’t need to file a gift tax return.  Avoiding the gift tax return is nice, but when can gifts be tax deductible?  Well my grandmother taking me out to dinner isn’t tax deductible and my mother taking me to a hockey game isn’t tax deductible, but what about a referral source taking me to that same hockey game?  It might have a different result.

A referral source is taking me to the game because they want to talk business and improve our relationship so we can find opportunities for us to work together in the future with clients.  The gift of tickets to the game is for both business and personal reasons so the IRS allows 50% deduction for entertainment expenses.  The IRS does audit this area often so keeping receipts and documenting the business purposes is very important.  That’s why a hockey game with my mother isn’t deductible; there is no business purpose for that.

Sometimes companies send out gift baskets to clients around the holidays.  Up to $25 is fully tax deductible for those gift baskets.  I have always thought that chocolate makes for a great gift; everybody loves chocolate.  The differences between a gift and entertainment expense can be tricky to determine but in many cases you are allowed to choose which would be more beneficial.  Sometimes deducting 100% up to $25 is better and sometimes deducting 50% of the total is better. As usual it depends on the facts and circumstances how and when the gift and entertainment rules apply.

Did I mention there’s only 45 more shopping days for your favorite accountant until Yuletide?

Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order.