As the festive season rapidly approaches, you may be beginning to think about how you can reward your employees for their hard work during the year.
While your initial thoughts may revolve around what to buy and how much to spend, it is worth keeping in mind that not all your gift ideas will be tax deductible.
Here is our quick guide of Christmas gifts and how they should be classified.
It may come as no surprise that no tax deduction is allowed for entertainment expenses.
While this may make sense during the year, when thinking of Christmas gifts for your employees you may find that lots of your ideas naturally fall under this category.
The IRS group amusement and recreational expenses alongside entertainment, so that includes sports, cinema and theatre tickets as well as tickets to any not for profit high school or college sporting events.
Any travel, parking or tips linked to these expenses are also deemed to be non-tax deductible.
If you decide that you would like to give your employees a Christmas bonus or some gift vouchers for Christmas, you need to be aware that the IRS will treat this as additional income and will be taxable to the employee.
In a similar way, any certificates or awards that an employee can exchange for merchandise or other products will also be taxed to the employee.
Non-cash gifts, which are anything that cannot be exchange for cash, will be tax deductible providing the value is under $75 and isn’t something that you intend on buying for your employees on a regular basis.
Celebratory meals away from the office
While you may not be able to save any tax on treating your employees to tickets for a night out, you could treat your team to a Christmas meal.
Company activities such as holiday parties, birthday and anniversary celebrations are fully tax deductible.
It is important when you classify this expense to code it under meals – celebratory to ensure the 100% deductibility.
Meals within the office
If your workforce is too big to take out for a celebratory meal, you may wish to bring some food into the office instead.
At the moment, meals provided for the convenience of the employer are 50% deductible. If your Company has a canteen or similar employer-operated facility, this can still be used even if it is offsite.
However, it may be worth noting that as of 12/1/25, this expense is scheduled to become non-deductible.
What should I do if I am unsure?
If you want to be safe with your gift ideas, then a non-cash option like a gift basket or holiday turkey will be tax deductible.
If you have an idea of what you would like to give your employees for Christmas, but you are unsure of how it will be categorized, you can contact the team at Walsh to set up a free consultation.