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This magical time of year brings family and friends together, but the holidays can also be one of the most stressful times when personal and work life blend together. Amidst checking off shopping list items and running errands, sellers must diligently keep track of client gifts and receipts so they can close out the year on a high note and maximize their tax deductions.
Discerning what is tax-deductible and what isn’t can be difficult. Just like you’re nurturing your relationships with those you love during the holidays, you’re also trying to reinforce bonds with your clients through holiday gifts or traveling to see them. Here’s how to make sure your personal and business expenses (and time) are easily separated this holiday season.
Gift Yourself a Return for Those Gifts
You may want to reconsider the expensive gift basket for each of your clients. The Internal Revenue Service (IRS) has set a $25 limit on how much you can deduct per client gift. But don’t go too cheap and give out tons of gifts to every single person you’ve done any type of business with — the IRS does not allow deductions for gifts less than $4. Plus, identical gifts, like branded note cards or pens, are not allowed to be deducted, nor are gifts that the recipient will use on the premises of the business.
If you do want to spoil your clients with a bigger purchase, consider going the entertainment route — take them to dinner or to a concert or sports event. The IRS allows you to deduct up to 50 percent on entertainment. The IRS does have stipulations regarding entertainment that is “lavish or extravagant” though, so check with a tax advisor first if you have any concerns.
Be aware that gifts are only deductible if they are for clients. Gifts for mentors or your best friend who cheered you on during a challenging time at work are not eligible for deduction. Just be thankful for the emotional and motivational benefits they provided your business.
Business Travel When Family Comes Along
When you’re heading out of town for a seminar, convention or meetings with clients this winter, it may be tempting to bring the family. It’s OK to do so.–you can have fun with the kids in the morning and still make it to the conference and networking event in the afternoon. However, the trip is tax deductible for you, but not for your family. So while your airline ticket and hotel room are covered, any additional airplane tickets or extra expenses would not be covered — like if you got a different hotel room for the kids, for example.
If you’re splitting your trip into work and play — the first half of the week is business and the second half you’re vacationing with your family — you can only deduct travel, meals and entertainment costs for the business portion of the trip, and only for yourself.
If you’re looking for a way to deduct family expenses, be careful of an audit! In order to deduct family members’ costs, they must be an integral part of your business (on the payroll or own part of the business) and you’ll need to prove they’re working on the trip, not just entertaining clients.
Family Vacations That Include Some Business
Some trips are business first, vacation second. Other trips are planned vacations that include little business. For the latter, make note of the business expenses you take on during your personal trip. As you travel this holiday season with your family, you might also be meeting with out-of-town clients on the road, or working from your hotel room. If you want to maximize your business tax credits for next year, it is essential to record every possible expense, keeping track of receipts so you can easily separate what you’re spending for personal use versus business. If you are paying for hotel Wi-Fi to conduct business, for example, that can be deducted.
Using accounting software such as QuickBook Self-Employed allows you to instantly track spending in digital files, so you always have access to the info you need without having to scramble to find paper receipts.
Separating personal and business expenses is easiest when you block out a specific amount of time to work. Maybe that means working at a public venue away from your family, or maybe it means sending your spouse off with the kids so you can have a few hours alone where you’re staying. Be mindful of these business expenses that you might incur while on holiday vacation with your family:
*Phone usage for client calls
*Mileage driven for client meetings
*Meals with clients
*Payment for co-working space while you’re on the road
Don’t Let Holiday Stress Affect Your Business
The holidays are hectic enough. Stay motivated and organized by using a tool where you can easily input spending and donations (charitable contributions are deductible too!), so you’re fully prepared next year. Plus, since tax professionals recommend keeping receipts for up to six years in case of an audit, having a digital record protects you for many years to come.
Look at the holidays as a way to strengthen relationships with your clients and organize yourself for an easy tax season come the new year.
Do you have a question about holiday tax deductions? Do you have any tips on how to keep track of holiday business spending? Leave a comment to join in the discussion.