Gift Giving & Taxes

The holiday season is nearly here, and you might be starting to think about gift giving this year. If you’re planning on thanking your employees for their great work throughout the year with gifts, or maybe even a holiday party, there are a few tax rules you should keep in mind.

In general, all types of compensation are subject to income tax – unless excluded by the tax code.

De Minimis fringe benefits may allow employers to provide holiday gifts of property – not cash or cash equivalents – with a low fair market value, without the employee having to pay additional taxes on the gift. De Minimis (reminder found here) in simple terms refers to something too minor or small to be considered. In other words, it is something small enough it is not practical to track or administer the value and has little to no impact on the employees’ income.

The frequency and availability of these gifts can determine whether or not they are considered de minimis.  As a general rule, as long as all employees are receiving the same gifts, the frequency isn’t an issue.

Some items that do qualify as de minimis fringe benefits and gifts – and are therefore excludable from income tax – include:

  • Traditional holiday gifts with a low fair market value. This includes your turkeys, hams or any other small non-cash
  • Occasional cocktail parties – this means your company holiday party, employee picnics, etc.
  • Occasional sporting event or theater tickets.
  • Occasional coffee, donuts and snacks in the office.
  • Special occasion gifts, such as sympathy flowers.

Each of the above items include a time frame… occasionally. These small gifts are considered excludable as long as they are not being given on a regular or excessive basis.

Now that we know what is excludable, let’s take a look at what is considered taxable.

The larger the gift, the better the chance it is taxable compensation. For example, if you’re considering giving your employees season tickets to see their favorite football team, those tickets are considered taxable and must be reported as income.

Other examples of taxable gifts include:

  • Gifting your employee a weekend away at an employee-owned facility, such as a hunting cabin or timeshare.
  • Providing your employee a membership in a country club or a gym.
  • Allowing your employee to use a company vehicle for commuting or other personal use more than one day a month.

Some employers provide some of these benefits throughout the year, while others may give them for the holidays. If you’re planning on giving any of these gifts, make sure you include them as income!

You might have noticed we haven’t touched on a very common gift employers give for the holidays – gift cards, gift certificates and even cash.

When it comes to gift cards, certificates and cash, the rule is pretty straightforward: no matter how large or small the amount, it will always be taxable (with a few small exceptions of course). If you’re thinking of giving your employee a $5 Target gift card or even a $500 general use gift card, you guessed it – it must be reported!

The moral of the story? Pay attention to the value of your gifts to make sure you’re in compliance. If you want to give your employees great gifts but aren’t quite sure what you should be reporting, let us know. We are here to help you and your employees have a great holiday season!

Fringe Benefits: What You Need to Know

As an employer, you want to ensure your employees are happy and thriving in your business. From time to time, you may even reward them for a job well done. But before you give a reward that’s outside the scope of their pay rate, think twice.

Welcome to the world of fringe benefits.

What are fringe benefits?

Fringe benefits are any form of payment that is considered compensation beyond your employee’s normal pay rate. This could include property, services or cash.

Why do I need to think twice?

Often, fringe benefits are taxable to the employee. And if it’s taxable, you have to report it on the employee’s W-2.

Fringe benefits that are taxable include:

  • Vacations
  • Personal use of an employer-provided vehicle
  • Gym memberships
  • Bonuses
  • Moving expenses (those in excess of your qualified expenses)
  • Group term life insurance
  • Gift cards

This is by no means an exhaustive list, but it should at least get you thinking.

What else do I need to know?

When we talk about fringe benefits, we’re often talking about value. The IRS has a little rule called de minimis fringe benefit, otherwise known as “one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.”

In other words, when you talk about value in regard to de minimis fringe benefits, if the benefit is so small it makes reporting it impractical, you don’t have to worry about it. And before you ask, there’s no specific dollar amount given.

One thing to remember is that cash or cash-equivalent gifts are NEVER non-taxable. For example, gift cards have an easily ascertainable value and can be redeemed for merchandise or a cash equivalent. So they need to be reported as part of an employee’s wages.

If you give items that are not cash, you will more than likely utilize fair market value. For instance, say you have a drawing during your company holiday party and an employee wins a 60 inch TV. This would not be considered de minimis and would need to be included in their income so taxes could be withheld. In this instance you can easily ascertain the value of the TV.

In the above example, you utilize fair market value. However, there are items that don’t have an easily discernible value. In that case, look at what a willing buyer would pay for that particular item. If you need a little more help, the IRS lays out guidelines for the valuation of certain items, like the lease of an employer-provided vehicle. You can find more information on that here.

So what would be considered de minimis?

So what would be considered de minimis? An example would be giving each of your employees a T-shirt, turkey, or something similar in value. The key here is that it HAS to be something tangible (as a reminder, this doesn’t mean cash or anything with a value attached … even a $5 gift card counts).

The moral of the story?

Fringe benefits are a great way to reward your employees and help you stand out from your competition. However, you need to be careful that you’re actually reporting these benefits as part of your employee’s wages.

1099 Reminder

Way back in July, we taught you the basics of the 1099 forms. Now that the deadlines for these forms are coming into view, we thought we would give you some tips and helpful reminders for getting them filled out.

Wait, what are these for again?

The most common type of 1099, the 1099-MISC, needs to be completed for anyone who has provided services to you amounting to $600 or more. This can be anything from accounting services to snow removal – if it was $600 or greater worth of work, it goes on the 1099-MISC. However there are a few exceptions to the rule (go figure!). A 1099-MISC isn’t required if:

  • The company providing the services is incorporated – except with lawyers.
  • The person who provided services is your employee.
  • The amount of services provided is less than $600 worth.

Do I need to report anything else on the form?

The 1099-MISC requires you to report any rent paid to an individual or business that isn’t incorporated. It also requires you to report royalties of $10 or more and any other income payments such awards and prizes, and even employee wages paid after death. In other words, most miscellaneous payments are reported on the 1099-MISC.

Any other forms I should know about?

Another common 1099 is the 1099-INT. This form focuses on – you guessed it – interest reporting. Any interest paid amounting to $10 or more, any foreign tax and interest or backup federal withholdings – regardless of the interest payment amount — must be reported on this form.

So, when are they due?

Depending on the type of form you are filing, the due dates may vary. The IRS website gives a great picture of when each form is due. You can check it out here.

Anything else I should know before I get to work filling these out?

As always, these forms are more complex than meets the eye, and this list of items to include is not all-inclusive. Our pals at the IRS do a great job of explaining them, and we’ve also crafted a handy blog to help you get a picture of what these forms include.

We’re hopeful these reminders will give you the information (see what we did there?) you need to fill out the 1099. If your head is still spinning, let us know. We’re always here to help!

Taxable v. Nontaxable Income

Tax season will be here soon, which means your friendly numbers nerds are getting ready! From balance sheets to calculators and everything in between, this is a busy time of year with a lot of moving parts. Tax day, Tuesday, April 17th, will be here in just 162 days. It’s a good idea to think ahead.

When it comes to income, it’s a fairly safe bet to assume it will be taxed. For example, salaries, bonuses, interest and business income are almost always taxable. However, there are some exceptions when it comes to what is and isn’t taxable. This stuff is important to know – different types of income can greatly impact your tax strategies for the upcoming year.

Everyone earns income in some shape or form, and knowing when you should and shouldn’t be paying tax is a must. As a business owner, it’s also important to realize what your employees may need to report on their tax filings, and how this might impact your business’ tax strategy.

To help you with your tax planning, we’re here to help break down which forms of income may be taxable.

The following types of income are taxable, and need to be reported properly:

  • Benefits from unemployment
  • Punitive damages
  • Income from bartering, which is based on the fair market value of the product or service you receive
  • Disability insurance income – if your employer paid the premiums
  • Fringe benefits you receive for performance of your services – think wellness benefits, company car use, etc.
  • Rent payments you receive for personal property – if you are operating your rental activity as a business
  • Gambling winnings and cash prizes

However, not everything is taxable. Here are some of the nontaxable types of income:

  • Workers’ compensation benefits – unless they are part of your retirement package
  • Disability insurance income – if you paid the premiums
  • Compensatory damages for getting sick or being injured
  • Cash rebates from the dealer or manufacturer of a service or product
  • Excluded fringe benefits, such as health insurance, parking and employee discounts
  • Child support payments
  • Rent money if you rent out your primary or vacation home fewer than 15 days a year. This is important to note if you use popular vacation rental sites, such as Airbnb and HomeAway. Also, note that if you rent it out more than 14 days, the activity is taxable.
  • Gifts and inheritances – if your great-great uncle passes away and leaves you his massive stamp collection, lucky you – no income tax!

It’s important to keep in mind these lists don’t include every taxable and nontaxable type of income under the sun, and there are often rules and exceptions that may apply. If you get confused, or aren’t sure if you should really be reporting something, check in with us. We’re here to help.

A version of this post first appeared in Eide Bailly’s Year End Tax Planning Guide.

Things that Should Scare Small Business Owners

HalloweenWhen you’re running a business, there are a lot of things to consider. From payroll to people to marketing, you have a lot on your plate. In fact, we’re guessing there’s more than a few things that keep you up at night.

There are all sorts of scares lurking around the corner when it comes to owning and running a small to mid-sized business. Here are a few of the ones we find particularly frightening:

You hire without doing your research.

It’s true, you wear a lot of hats as a small business owner. It’s also true that quite a few of those hats are ones you don’t know anything about. Small business owners normally get into business because they have a dream to pursue, not to worry about the day-to-day details of running a business.

To solve that problem, you hire quickly for areas you don’t know anything about. Sounds good right? Not so fast …

  • Are they qualified? When you don’t know anything about the position you’re hiring for, you don’t know if the person (or consultant) is qualified to take on that role. For example, if you’re thinking about hiring someone to look at your financials, do you want a bookkeeper or a CFO? Or somewhere in between? There are several differences, including experience, duties and even pay.
  • How do you measure success? If you don’t know anything about the subject or position you’re hiring for, how do you measure success for that individual? How do you know your expectations and proposed timelines are reasonable?
  • Have you checked all the boxes when it comes to hiring? Another thing to consider is the entirety of the hiring process. Maybe you found the perfect candidate and you want them to start right away. But have you taken into account the necessary steps when it comes to hiring? There are several forms to fill out, items to consider and that pesky thing called onboarding. All of this has to be taken into account before you make that hire.

We’re all for hiring (whether it’s an employee or a consultant) to help you run your business. Just make sure you do the research and know what you want and need in order to help your business run more effectively.

You don’t take your financials seriously.

Having up-to-date, accurate financials is of paramount importance. If you don’t, you’re in for a world of hurt. Without it, you don’t know how much money you’re making (or losing), nor can you even begin to understand the basic state of your business.

Further, you won’t be able to make strategic business decisions and set a course for the future of your business. Plus, financial information is pretty important to creditors, investors and buyers.

Only 40% of small businesses say they are “extremely” or “very knowledgeable” in accounting and finance. (source)

Bookkeeping is not as simple as just throwing numbers into a spreadsheet. You need to understand basic accounting terminology in order to make informed decisions. For instance, just because your books say there’s money coming in, doesn’t mean you’re in the clear. Cash flow and profit are two different things.

The solution? Invest in accurately tracking your business financials. Find a consultant or hire an accountant (once you’ve done your research) who can help you navigate your current situation and also look out for potential pitfalls.

You don’t have accountability.

Success matters to small businesses, especially in the early stages of your company. But what does success mean? Can you define it in a measurable way? Can your employees?

Businesses work when roles are defined and individuals understand their performance expectations. That’s why it’s important to have KPIs (key performance indicators) in place for your company and your employees.

It’s here where we remind you that KPIs are quantifiable measurements for critical success. Quantifiable is key as it helps you track progress and whether or not you’re accomplishing your goals. If you’re not tracking, then you have no idea if it’s working or if you need to find ways to improve.

You don’t value your product … or yourself.

Let’s start with the basics … one of the keys to starting a business is that you have a product or service people actually want. Once you’ve got that, the next step is pricing it effectively.

Often, business owners play the cheapest option game to get their product into the market. This path undermines the real value of your product. Plus, it’s a lot of work to come back from under pricing your product.

Take the time, instead, to do some market research and really find a price point that shows the value of your product and also allows for market entry. Also, ensure the price point you’ve chosen will help your business financially … which is why it helps to have up-to-date financial information from the beginning.

But let’s not forget about YOU. In addition to your product’s value, you have value as the business owner. At the beginning you’re trying to do it all. It’s important to realize when you’re in too deep and you need help.

“Your new venture demands that every aspect is handled by someone who understands what they’re doing. And no amount of good intention will turn an IT specialist into a good bookkeeper.” (source)

The moral of the story here is to value yourself. Value your time, know your strengths and why you got into business. Let someone whose passion is for numbers or marketing or HR or whatever the subject may be handle the tasks you need done. And remember, if you don’t want to hire someone full time, you can always outsource it.

You’re not playing by the rules.

To say there are more than a few updates to rules and regulations affecting small businesses each year would be an understatement. Did you know, for instance, the General Services Administration annually updates the federal maximum per diem rates? This update would affect any business that has employees travel for work.

Or did you know that several states and cities are now introducing mandatory paid sick leave policies? If you have workers, your policies (if your business is in any of the affected areas) will have to align with this new ruling.

These are just a few examples of the rules and updates small business owners face on a regular basis. Many of these rules directly affect your financials, how you report information about your company and its customers and the benefits and rights your employees get.

That’s why it’s important to know what’s going on and ensure you’re in compliance. Find a consultant who can stay on top of these updates and regulations and ensure your business is following the rules.







Tax Planning & Your End Game: What Business Owners Need to Know

We can’t stress enough the importance of having an exit plan for your business from the start. An exit plan allows you to lay out transition of ownership and passing of responsibilities associated with your business. Ultimately, it will give you peace of mind as you work on your business, knowing you already have your end game in motion.

Plus, by working on your end game early on, you can hopefully save yourself some time and headache later. One of the key areas where this is especially applicable is taxes. Without the proper planning, taxes can trip you up at the end if you haven’t planned from the beginning.

Here are a few common exit options and some key tax issues:

Buy-sell agreement.

A buy-sell agreement lays out a roadmap for what happens to the business should a specified event occur (we’re talking retirement, disability, death, etc.). Among other things, it can lay out methods for setting a price for owner shares, allows for business continuity and provides a buyer with a way to fund the purchase of the business.

But what about the taxes?

Life or disability insurance associated with the business often helps fulfill the need for funding the purchase. One of the biggest advantages of utilizing life insurance this way is that proceeds are generally excluded from the taxable income of the beneficiary (the person receiving the benefit from the life insurance policy).

Family succession.

You do have the ability to transfer your business to a family member. This is done by giving them interests or selling them interests in your organization (or both).

But what about the taxes?

There’s an annual gift tax exclusion which allows you to gift up to $14,000 of ownership interest under your gift tax annual exclusion without incurring federal gift tax consequences.


Some individuals choose to transition their business to their employees through an employee stock ownership plan (ESOP). An ESOP is a qualified retirement plan created to purchase your company’s stock.

But what about the taxes?

There are all sorts of tax implications and benefits for ESOPs. Check out the National Center for Employee Ownership for a list of some of the major tax benefits of going this route.

Sale and acquisition.

You’ve built something from the ground up and now you’re ready to sell it. Or maybe, you’re ready to add on through acquiring another company. Either way, you need to have your business in a ready state, including transparent operations, updated financials and streamlined processes and procedures.

But what about the taxes?

Here are a few tax considerations to think about:

  • Asset v. stock sale
  • Tax-deferred transfer v. taxable sale
  • Installment sale

The moral of the story.

It’s safe to say taxes have far reaching implications on your business, including how you plan to transition out of that business. That’s why it’s important to consider your end game early and prepare for the tax implications that come with it.

A trusted tax adviser can help you navigate all these circumstances and discuss what will work best for your business and your goals. That way you’ll prepared for the end, before you actually get there.

A version of this post first appeared in our 2017-18 Tax Planning guide.

Introducing the 2017-18 Tax Planning Guide

Tax planning guideTaxes are important, especially as you’re running your business. Paying attention to tax laws, and planning in a timely fashion for taxes, can seriously help you in the long run. For instance, you can estimate your tax liability and even look for ways to reduce it. That’s why we created our annual tax planning guide.

The guide highlights all sorts of information related to tax planning and tax law. Topics include:

  • Executive compensation
  • Investing
  • Real Estate
  • Business Ownership
  • Charitable Giving
  • Family & Education
  • Retirement
  • Estate Planning
  • Tax Rates

To learn more, or download the guide, click here.

Change could be coming …

There’s a large possibility that tax laws could be seriously changing, thanks to a change in White House administration and Republicans maintaining a majority of Congress. But for now, following current tax laws is the way to go.

However, it’s important to know that change could come quickly and you need to be ready to respond. We encourage you to have a tax adviser who can help you navigate these changes if they happen.