The holiday season is a time for celebration. It's also a critical time for small businesses to stay on top of tax obligations and maximize year-end deductions. Below are four essential holiday tax tips to keep your finances merry and bright.
- Holiday Expenses: Deductible?- Some holiday-related costs can be tax-deductible, helping you save while spreading cheer.
- Client Gifts: You can typically deduct up to $25 per client for business-related gifts. If gifts are branded, they may qualify as advertising expenses.
- Employee Bonuses: These are fully deductible, but be sure to include them in employee W-2 forms as taxable income.
- Holiday Parties: Throwing a party for your employees? The costs are generally 100% deductible, but a party for clients or prospects may only qualify for a 50% deduction, per entertainment expense rules.
- Charitable Contributions: Maximize Your Holiday Giving- The holidays are a perfect time to give back, while also reducing your tax burden.
- Cash Donations: Contributions to 501c3 organizations are tax-deductible. Be sure to keep receipts or acknowledgment letters for amounts over $250.
- Goods & Services: If you are donating inventory, supplies, or services, be sure to deduct their fair market value while excluding any profit margin.
- Volunteering: You can’t deduct the value of your time, but expenses like mileage and supplies for volunteer activities may be deductible.
- Holiday Promotions: Know Your Sales Tax Obligations- Sales tax rules can get tricky during holiday promotions. Here are a few to watch for:
- Discounts: For discounted items, collect sales tax on the reduced price, not the original price.
- Giveaways: Items given away for free may still be subject to "use tax." Be sure to check with your tax professional.
- Bundled Products: If you bundle taxable and non-taxable items together (e.g., a gift basket), you may need to allocate sales tax based on the value of each item. Be sure to check with your tax professional.
- E-Commerce: Stay Compliant Across State Lines- Selling online during the holidays? Be sure you understand your sales tax obligations under nexus laws, which vary by state:
- Physical Presence Nexus: If you have a store, warehouse, or employees in a state, you must collect and remit sales tax there.
- Economic Nexus: Many states now require sales tax collection if your sales exceed a certain revenue or transaction threshold, even without a physical presence.
- Tax Software: Consider using tax compliance software to calculate, collect, and remit sales tax accurately, especially if your e-commerce business spans multiple states.
By staying proactive about holiday expenses, charitable contributions, and sales tax compliance, you can reduce stress, maximize savings, and end the year on a positive financial note! As always, consult a tax professional for advice tailored to your business