Yes, you can deduct promotional gifts such as company advertising expenses. According to the IRS, gift cards for employees are considered cash-equivalent items. Like cash, include gift cards in an employee's taxable income, regardless of how little the value of the card is. Consult a tax professional if you have questions about whether you need to withhold tax on gift cards.
Giving gifts to your employees is a good gesture, but it's important to make sure you're reporting them correctly, or you could end up with something worse than a piece of charcoal as a result. Under IRS gift card tax rules, because cash and cash equivalent benefits, such as gift certificates, have an easily verifiable value, they are not de minimis supplemental benefits. You can't deduct it now due to pending gift certificates, as some may never be redeemed. In general, minimum value prizes and gifts (such as a holiday turkey, for example) are generally governed by the de minimis rule and are not taxable.
However, if your organization gives gift cards to staff, there are steps you need to take to ensure that you comply with IRS regulations. If the gift certificates had been for another business (WalMart, for example), it would have incurred a real cost to purchase the gift certificates given away. Gift cards or e-gift cards can be a great way to show appreciation for businesses and individuals alike. It's the holiday season and employers are already looking for the perfect gift for their staff.
So which one is it? Are gift cards taxable income, such as cash, or are they complementary de minimis benefits, such as fruit baskets? Minimal value prizes and gifts, such as a holiday turkey, for example, are generally governed by the de minimis rule and are not taxable. Since gift cards are essentially the same as cash, they are considered an easy item to account for and are therefore taxable. Now that you know that gift cards are taxable, you can avoid making the mistake of giving them to employees without first withholding taxes. However, people often incorrectly assume that IRS rules on gift cards for employees are also covered by de minimis supplemental benefit rules.
