Incentive Trips and Tax Write-Offs

by Tammy Levent June 10, 2014

written by Tammy Levent June 10, 2014

After deciding to give your employees incentive trips you may be wondering- What is tax deductible and what’s not? Below is just a glimpse of what you need to know about what is tax deductible regarding awarding trips and bonuses to employees.

Bonuses – You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. However, the total bonuses, salaries, and other pay must be reasonable for the services performed.

Awards – You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. If you give property to an employee as an employee achievement award, your deduction may be limited.

Achievement awards – An achievement award is an item of tangible personal property that meets all the following requirements.

It is given to an employee for length of service or safety achievement.
It is awarded as part of a meaningful presentation.
It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay.

Deduction limit – Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following.

$400 for awards that are not qualified plan awards.
$1,600 for all awards, whether or not qualified plan awards.

A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits.

A highly compensated employee is an employee who meets either of the following tests.