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Tips, Christmas gifts for household service employees?

We've converted half our fairly sizable "empty nest" personal residence on a college campus into three studio apartments (separate baths, kitchenettes. separate patios and entrances, parking, shared used of main lawn).

To maintain all this we employ a regular inside and outside cleaning and maintenance service and a gardening service, both licensed businesses -- we pay them directly per invoices -- and deduct pro rata share of these costs based on floor area.

Over the course of a year we do get to know some of these service employees, and give some of them Christmas tips or cash gifts. Are these also deductible (on shared basis) as part of annual maintenance costs for these units?

Reply to
AES
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I would consider these tips if reasonable and ordinary for your rental activities.

Any amount over $25 for the whole year paid to an employee or any amount paid to a contractor whose total payments are at least $600 should be reported on the appropriate W-2 or 1099Misc.

Reply to
Arthur Kamlet

Shouldn't any amount be reported on the W2?

Reply to
removeps-groups

For the OP's specific situation, yes. The described "gifts" to the employees are taxable income.

Reply to
Bill Brown

This is a "business gift expense". Note: we are not discussing your own W-2 employees. The IRS has allowed a business to deduct business gift expense up to a maximum of $25 per donee.

You can find an excellent discussion of this subject in the Business Owners Toolkit by Walters Kluwer:

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Reply to
Alan

nest" personal residence

The $25 limit (which is set by Congress, not the IRS) is also limited to non-cash items.

ANY cash payment in the described situation is taxable income to the recipient.

Reply to
Bill Brown

"empty nest" personal residence

I can't find anything in Sec. 274 or its regulation that excludes from the definition of a business gift "cash." Note that in the definition of gifts (see below), it refers to items excludable in Sec. 102. Sec. 102 includes cash gifts.

Sec. 274 (b) Gifts (1) Limitation No deduction shall be allowed under section 162 or section 212 for any expense for gifts made directly or indirectly to any individual to the extent that such expense, when added to prior expenses of the taxpayer for gifts made to such individual during the same taxable year, exceeds $25. For purposes of this section, the term ?gift? means any item excludable from gross income of the recipient under section 102 which is not excludable from his gross income under any other provision of this chapter, but such term does not include? (A) an item having a cost to the taxpayer not in excess of $4.00 on which the name of the taxpayer is clearly and permanently imprinted and which is one of a number of identical items distributed generally by the taxpayer, or (B) a sign, display rack, or other promotional material to be used on the business premises of the recipient.

Reply to
Alan

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