Understanding All-Staff Celebrations, Bonuses, and Gifting Rules for Your Business

The IRS allows for 100% deductible meals under specific circumstances, but only if they're part of an "all-staff celebration." To qualify, three critical components must be met:

1. Everyone’s Invited: The event must be open to all staff members, with everyone potentially able to attend.
2. Not Mandatory: It’s important that the event is not tied to required meetings or standard office functions (sorry, those pizzas at your team meeting only qualify for a 50% deduction since 2018).
3. Celebrate Something: There must be a clear and documented reason to celebrate—this is not about routine office lunches. Whether it’s a holiday party, achieving a big milestone, or celebrating a successful project completion, the focus should be on creating a celebratory environment.

While meals for an all-staff event may be deductible, entertainment-related expenses are not. This rule has been in play since 2018.  

For example, if you take your team to a baseball game:

Many business owners love giving bonuses or gifts to employees during the holiday season, but there are critical rules that govern their tax treatment.

Holiday Bonuses

Bonuses might seem like a good way to show appreciation, but they can come with unintended consequences. Here are some key things to keep in mind:

• Employees often come to expect bonuses as a norm, and inconsistency (like smaller bonuses in a low-revenue year) can cause frustration.
• IRS Rules require all bonuses—whether in cash, gift cards, or valuable gifts—to be processed through payroll. This helps maintain transparency and ensures that taxes are correctly withheld.

💡 Consideration for Bookkeepers:

Did you know that bookkeepers often receive the smallest bonuses in many businesses? Overlooking their contribution can lead to dissatisfaction—and nobody wants to risk disgruntled staff in charge of sensitive financials!

Gifting Guidelines

Gifts to employees are subject to stringent regulations:

• De Minimis Gifts (i.e., very small in value) are excluded from being taxable. Think of items like a $10 coffee gift card or a small token of appreciation under $20 per year. Do keep it minimal and infrequent.
• Cash or gift card gifts above de minimis must be treated as taxable income and processed through payroll.

💡 For example, handing out $50 gift cards? These need to be recorded as income for employees. While it might not feel festive in the moment, this process benefits employees in the long term since bonuses recorded as income strengthen their W-2 for financial qualifications such as home loans.

Why Think Twice About Holiday Bonuses?

Ask yourself:

• Does gifting bonuses improve your corporate culture or business performance?
• Is this act serving to motivate your staff, or is it simply expected?

If the answer feels like “no,” reconsider how you approach employee appreciation.

Are bonuses causing you bookkeeping headaches? Get creative with alternatives that show appreciation while staying compliant with tax laws.

At one previous company I worked with, here’s what we did:

• Customized Logo Apparel: Each employee could choose their preferred style (fleece, hoodie, t-shirt, etc.), and the logo was embroidered on. Since these items doubled as advertising, they didn’t fall under the taxable gift category.
• Desk Survival Kits: We included small snacks and office essentials in a fun holiday bag. Since the cost of these was under the de minimis threshold, they posed no tax issues.

These thoughtful gestures allowed employees to feel valued while eliminating the administrative headache of running everything through payroll.

When managing celebrations, bonuses, or gifts, the golden rule is simple—you can’t just "wing it" and hope for the best. Clear records, understanding the tax implications, and aligning with IRS regulations are essential to avoiding penalties down the line.

This holiday season, remember:

• All-staff celebrations must invite everyone, be non-mandatory, and have a celebratory focus to qualify for meal deductions.
• Entertainment expenses are non-deductible.
• Bonuses and gifts must be processed through payroll unless they're de minimis.

And don’t forget—bookkeepers and financial managers deserve their fair share of gratitude too!

By thinking critically and exploring alternative ways to appreciate your team, you can keep your employees happy, maintain compliance, and avoid unnecessary costs. After all, a successful business runs best with informed leaders steering the ship.

What creative ways have you used to show appreciation this holiday season? Share your ideas below—we’d love to hear them!