Can I Write This Off?

Is gift cards for employee bonuses tax deductible?

TL;DR

Gift cards given to employees as bonuses are generally deductible as a business expense, but they are also considered taxable income to the employee. It's important to report these correctly 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, the IRS treats gift cards as cash equivalents, meaning they must be included in the employee's taxable income and reported on their W-2 form. For example, if a business gives a $100 gift card to an employee, the business can deduct the $100 as a wage expense, and the employee must report it as income. This differs from de minimis fringe benefits, which are small, infrequent gifts that are not taxable, but gift cards do not qualify as de minimis due to their cash-equivalent nature.

Where to Put It on the Tax Form

Schedule C, Line 26 (Wages) for sole proprietors; Form 1120, Line 13 (Compensation of officers) or Line 14 (Salaries and wages) for corporations.

Real World Example

A freelance graphic designer gives a $50 gift card to each of their two part-time assistants as a holiday bonus. The designer can deduct the $100 total as a wage expense on Schedule C, Line 26, and must ensure the $50 is reported as income on each assistant's W-2.

Audit Risk & Documentation Tips

The audit risk is moderate because the IRS scrutinizes deductions that involve employee compensation. Keep detailed records, including the amount and purpose of each gift card, and ensure they are reported on employees' W-2 forms. Retain receipts and documentation showing the business purpose of the bonuses.

IRS Reference

IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits; IRC §162.

Relevant Industries

Small Business OwnersFreelancersConsultantsRetailersService Industry

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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 15, 2025

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