‘Tis the Season

Image showing gifts with the words "'Tis the Season - Gift Giving - Are Business Gifts Tax Deductible?"

It’s that time of the year again…

The season begins with a gratitude feast and many of us start thinking of all the things – and people – we’re thankful for. Often, we decide that we’d like to say “Thank You” with a gift. So the question arises – If a business owner gives a gift to a customer or a vendor, is it a deductible expense for the business?

According to the IRS, business gifts are deductible, but there is a limit of $25 per person per tax year. Do you feel like this limit is unreasonably low? From my Google research, I discovered that this limit was set in 1962 (over 60 years ago!) Adjusting for inflation, this is the equivalent of $227.80 in 2023. Put another way, $25 today buys what could have been purchased for $1.26 in 1962.

So, what can a law-abiding, but generous business owner do?

First of all, review the regulations and discuss the matter with your tax professional. (*Note: I am a bookkeeper, not a tax preparer.) Keep in mind that the issue is the deductibility of the gift. In other words, the IRS wants to make sure taxes are paid on anything over the limit.

Here are some strategies that satisfy the IRS requirement and still allow business owners to give gifts that cost more than $25:

  • As mentioned, the limit is $25 per person, so if you are giving a gift that will benefit more than one individual at a company, you can multiply $25 by the number of people who will benefit from the gift.
  • If you want to give a gift that exceeds the $25 per person limit, you can pay for the portion of the gift that exceeds the limit with personal funds. The cleanest way to do this is to literally pay with two different accounts – the business account for the $25 portion and a personal account for the amount over $25. However, if you would rather have your business pay the full amount, you can make an entry on your books to allocate the deductible portion to Gift Expense and the over the limit portion to the Owner’s Draw account. Whichever method you choose, your business will keep the $25 gift expense as a deductible business expense and you (the owner or the C-corp entity) will pay taxes on the amount that exceeds the limit. (If you pay with personal funds, you’re paying with money that has already been earned and taxed – money that you already paid income tax on. If you pay through the business, the amount that is counted as an Owner’s Draw will be included as part of your income for the current year.)
  • If the gift is for a vendor who regularly provides services for your company, you can give a gift and let the individual know that the value of the gift will be reported on the 1099 issued in January. This approach works best for cash gifts and gift cards that you know the person will use. Remember that by adding the amount to the 1099, the individual will be responsible for paying taxes on the amount given, so if you give an expensive, but unvalued and unused gift, you’ve just increased the individual’s tax burden without providing them with any value.

Gifts for employees are treated differently. Please review De Minimis Fringe Benefits on the IRS website for more information.

Mileage Tracking Apps for Your Business

Picture of a road with the text Mileage Apps at the bottom

A few days ago I shared an article about deducting vehicle expenses on my Facebook page. Here’s a link to that article:

The Auto, SUV & Truck Deduction: Mileage or Actual?

Today, I’m following up with a blog post about mileage tracking apps.

For many years, I’ve been documenting my business mileage the old-fashioned way. Each year, I would buy a pocket calendar and then write down the odometer reading for business trip I took. At the end of the year, I would enter all my numbers into a spreadsheet and calculate my total business mileage for the year.

Last year, I started my bookkeeping business. As a bookkeeper, I pay particular attention to apps and services that could potentially be time-savers for my future clients. I decided to investigate a few mileage apps. Here are my thoughts about a few of these apps.

1.) Everlance – This is the app that I use on my Android phone. I use the free version and it does everything I need.

  • Automatic tracking – you can turn this off in the tracker settings
  • Easy classification of trips as business (allows for more than one business) or personal
  • Ability to create favorite places and favorite trips to automatically categorize common travel routes
  • Ability to edit starting and ending points – nothing is perfect all the time
  • A great website where you can login and filter your view to see exactly what you want
  • The ability to export your data from within the app or from the website
  • An expense tracker – Take a picture of your receipt, enter a few details about the expense and that’s it. You’ll be able to pull an expense report showing all your expenses over a time period you specify and you’ll always have access to your receipts.
  • Premium version available – $5/month when billed annually or $8/month when billed monthly*.

2.) MileIQ – I haven’t tested this one out, but I’ve heard good things about it from others who use it. A quick review of the website shows that it offers most of the same mileage tracking features as Everlance. A couple features that are missing:

  • No free version. The app costs $5.99/month or $59.99/year*. But, if you’re a Microsoft user and subscribe to Office 365 Premium Subscription ($12.50/month paid annually or $15/month paid monthly), MileIQ is included in that subscription.
  • There is no expense tracker / receipt management included. It’s strictly for mileage.

3.) Other apps to consider – Triplog, Hurdlr, and Stride Tax.

*Tax deductible business expense

Does anyone else have a favorite mileage or expense tracking app? If you do, please share it in the comments.

*Comments are closed

The Benefits of Bookkeeping

On left is folder overflowing with receipts. On right is an Income Statement showing income and expenses for the year.
  1. Less stress at tax time.  How much did you earn this year?  How much of that was reimbursement for expenses and not really “income”?  What are your total expenses for the year? Instead of scrambling to add up your income and expenses from old check stubs and faded receipts, you’ll be able to see all your income and expenses at a glance in an Income Statement.
  2. Increased insight into your business.  Do you know who your most profitable customers are?  What is the average time it takes to get paid for the work you’ve done?  Are there steps you can take to get paid faster? What are your biggest expenses?  How much are you spending with each of your vendors? Can you leverage your spending with a particular vendor in order to earn a discount?  Accurate bookkeeping will allow you to understand how money flows into and out of your business so you can make sound financial decisions.
  3. Keep up with your financials all year long – not just at tax time.  No one starts a business just to experience the joys of tax time!  Why did you start your business? What are the fun things you’re planning to do with your profits?  Before you decide how much money to take out of the business for personal use, it’s important to consider your Balance Sheet. This statement will tell you not only how much money you have in your business bank account, but also how much you currently owe and how much equity you have in the business.  You can use this information to determine if it’s the right time to start having fun or if you need to keep the cash in the business for a little longer.
  4. Peace of Mind.  How much are you making this month?  Is it more or less than last month? What are your expenses for the month?  Are you earning more than you’re spending? Having answers to these questions wards off the stress that comes with uncertainty.  If the answers are not what they should be, you can make a plan to correct things.

Independent Contractors : Know Your Numbers

1099-Misc Form with $30,862.50 in box 7. A question asks "Do you KNOW what's included in this total?"

Just a quick reminder to independent contractors who haven’t filed tax returns yet … Make sure you understand the amounts being reported in Box 7 of your 1099-MISC. Businesses you contract with may or may not include your reimbursed expenses in this box. If reimbursed expenses are not included, then you don’t deduct those expenses on your tax return since you were already reimbursed for them. If, however, the reimbursements are included in the total amount reported in Box 7, then you should deduct those expenses on your tax return. (In my experience, including these reimbursements on the 1099 is more common than not including them.) Hopefully you’ve kept good records and can tell what’s included in the reported amount by comparing it to your own records. If you’re not sure, though, it’s a good idea to call the issuer of the 1099-MISC and ask what is included in the total.

Another issue that may come up is that the amount reported on the 1099-MISC is higher than the actual amount of income you received. In some cases, this may be because the issuer includes a payment that was issued prior to the end of the year, but that you did not receive until after January 1st. All income reported on 1099s are reported to the IRS, so when you file your taxes, you should report the full amount in Box 7. You can then make an adjustment to your income by reporting the extra amount as an “other expense” line item with an explanation of “1099 income not received.” If you make this adjustment, then you’ll need to make sure you add that income as “other income” the following year since it won’t be included in the 1099 for that tax year.

Even if you use a tax preparer to file your taxes, it’s important that you understand your numbers. The tax preparer won’t know that reimbursements are included in box 7 unless you know it and share that information. The same goes for any year end income discrepancies. It’s easy for the tax preparer to make the necessary adjustments, but you need to alert him/her to the fact that an adjustment is needed.

Please note – I am not a tax professional, but I did do my research on this topic before posting. If anyone would like my resources, please ask.

“Begin with the end in mind” ~ Dr. Stephen Covey

Chalkboard with writing that says Success go get it.

Hello everyone!

For my first ever blog post, I thought I’d share a little advice from Dr. Covey.  It’s still early in the year, so it’s a great time to think about how you want your year to end up.  

What do you want to accomplish in your business by December 31st?  What steps do you need to take to reach your goals?  What can you do today to get you closer to the end you have in mind?

Have you written down your goals?  Research shows that when people write down their goals they are more likely to achieve them.  So, don’t just think about your goals… Get them out of your head and down on paper.  And don’t keep your goals a secret.  You can improve your likelihood of success by sharing your goals with someone who believes in your ability to succeed.

If you’re interested in reading more about the reason why these suggestions work, take a look at this article by Mary Morrissey:

“The Power of Writing Down Your Goals and Dreams”

​Do you have a goal-setting resource you’d like to share? If so, please post it in the comments.

*Comments are closed.