How To "Treat Yourself" With
Tax-Free Fringe Benefits

Flowers, Fruit, Books: Tax-Free Fringe Benefits

Your work was outstanding! Give yourself a fruit basket. Whoa. I’m the business owner; are you telling me that I can have my business give me a fruit basket (tax-free) and deduct the cost of the fruit basket as a business expense? Yes, that’s exactly what we are telling you. 

"Flowers, fruit, books, and similar property" refers to a category of gifts that the IRS deems appropriate to give to employees under certain circumstances (e.g. on account of illness, outstanding performance, or family crisis).

That being said, there are some rules to consider here. For your business to make this fringe benefit tax-free, it must meet two requirements—value and frequency. Here, the IRS has not been very helpful in defining either criterion. 

Value

Tax law considers it de minimis when the value is so small that it makes accounting for it unreasonable and impractical. So how small is this? 

In a 2000 memo, Jerry E. Holmes of the IRS Office of Assistant Chief Counsel wrote a memo in which he stated that an item with a value of $100 is not de minimis. This means that $99 and below is de minimis, right? Not exactly. 

In a 2008 information letter, Nancy J. Marks, division counsel/associate, explicitly stated that the IRS had established no dollar limit for de minimis fringe benefits. 

So where does this leave you? In murky waters, but you do know that at least one higher-up person in the IRS thought in December 2000 that the de minimis dollar limit was less than $100 (with inflation, that’s about $140 today). 

Frequency

The IRS does not allow you to make the gifts too frequently. How often is too frequent? 

The IRS doesn’t say, but adds some common sense to the regulation with this guidance as to when this fringe benefit is appropriate: “Examples of de minimis fringe benefits are … flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis)."

Be Wary of the Gift-Card Trap

Let’s say you want your employees to pick out the flowers or candy they want. You buy a coupon or gift card that’s redeemable at the candy or flower shop. That’s a no-no. 

By doing this, you destroyed the tax-free treatment. This is because the IRS considers the coupon or gift card a cash equivalent, and that disqualifies tax-free fringe benefit treatment. 

If you did this with an employee, you have to add the cash value to the employee’s W-2. The IRS considers the coupon or gift card taxable no matter how small the amount and even if that small amount is used solely to buy the flowers or fruit.

Takeaways

It’s about as good as it gets when you see the words “tax-free” in the tax law. 

Under the de minimis fringe benefit rules, your business deducts the cost of giving you or your employees flowers, fruit, books, or similar property under special circumstances (e.g., on account of illness, outstanding performance, or family crisis). 

The recipients—you or your employees—receive the de minimis fringe benefits tax-free. Think of this: if you operate as a proprietorship or S corporation, you get both (1) the benefit tax-free and (2) a tax deduction for the cost. 

You can provide de minimis fringe benefits to corporate directors, independent contractors, and partners in a partnership. Make sure to review the value and frequency rules that create the tax-free treatment. 

The Gold Standard team loves saving their clients money with win-win tax tips like this one. If you like saving money- especially come tax time- click here to schedule an appointment with one of Gold Standard's seasoned tax accountants.


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