Can I Write This Off?

Can you write off gift cards for employee bonuses?

TL;DR

Gift cards given as employee bonuses are generally deductible as a business expense, but they are considered taxable income to the employee. Ensure proper documentation and reporting to avoid IRS issues.

Detailed Answer

Gift cards provided to employees as bonuses are deductible as a business expense under ordinary and necessary business expenses. However, they are considered a form of compensation and must be included in the employee's taxable income, subject to payroll taxes. The deduction is valid as long as the gift card is given for business purposes, such as recognizing employee performance. It is crucial to report the value of the gift card on the employee's W-2 form. If the gift card is given to non-employees, such as contractors, it should be reported on Form 1099-NEC if the total annual compensation exceeds $600.

Where to Put It on the Tax Form

Schedule C, Line 26 (Wages) for sole proprietors or Line 19 (Other Deductions) for corporations. Report on W-2 for employees or Form 1099-NEC for contractors.

Real World Example

A freelance graphic designer gives a $100 gift card as a holiday bonus to their assistant. The designer deducts this $100 as a business expense on Schedule C, Line 26, and includes the $100 in the assistant's W-2 form as part of their taxable income.

Audit Risk & Documentation Tips

Audit risk is moderate. Keep detailed records of the gift card purchase, including receipts and the business purpose for the gift. Ensure the value is reported correctly on the employee's W-2 or contractor's 1099-NEC. Maintain records of communications or policies regarding the issuance of bonuses to substantiate the business purpose.

IRS Reference

IRS Publication 15-B (Employer's Tax Guide to Fringe Benefits), IRC §162 (Trade or Business Expenses).

Relevant Industries

Small BusinessesFreelancersConsultantsRetailersService Providers

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 25, 2025

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