As the season of giving draws near, many business owners look to thank and reward their employees. Whether that “thank you” is a turkey, ham, sweater, or cash will determine the treatment for both employer and employee. So, what is the best way to handle these bonuses? Are they deductible to you as the employer? Will your employees be taxed on the gift they receive? The answer to these questions depends on the form and value of the gift.


Tangible Property
If you are looking to buy your employees a gift as a token of your appreciation, there are a few things to keep in mind. Tangible gifts are not considered taxable income to employees as long as they fall under the definition of a de minimis fringe benefit. According to the IRS, a de minimis fringe benefit is a gift “for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable and impractical.” While the IRS does not set a maximum dollar amount for excluding de minimis fringe benefits from an employee’s taxable income, the business can deduct no more than $25 of a gift to any one person each year.  For example, if each employee is given a prime rib roast that cost $50, only $25 of each roast is deductible to you as an employer.


Cash and Cash Equivalents
Many business owners would like to reward their employees with a monetary holiday bonus. Whether in the form of cash, gift cards, or gift certificates, these items are compensation and must be included in the employee’s income. As such, the holiday bonus is considered wages and must be reported as payroll on the employee’s W-2, subject to all applicable payroll taxes (Federal and State withholding, Social Security, Medicare and Unemployment). For you as an employer, the bonus is reported as wages and is fully deductible.

Gift cards and gift certificates are treated the same as cash; you must withhold taxes from the employee’s pay for these gifts.  Please be aware, cash payments to your employees recorded as expenses other than payroll on your books are not tax deductible.

The preferred method to award a holiday bonus would be to include the bonus on the employee’s regularly scheduled payroll.  When issuing a bonus outside regular payroll, IRS requires different tax treatment of State and Federal Withholding, if you are unaware of these requirements, please contact our office.
It is important to note that the bonuses described above are not performance based, as the treatment for performance related bonuses may need to be handled differently. If you would like to give your employees a bonus based on the profitable performance of the company and/or employee, please contact us before doing so.

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Holiday Parties
With the major changes to meals and entertainment related expenses under the Tax Cuts and Jobs Act you are still able to host a fully deductible holiday party for employees. However, all employees must be invited to attend the party in order for it to remain 100% deductible.

Many of you have received a letter from the State of Colorado regarding new sales tax rules that become effective December 1, 2018.  Below is a brief summary of how it may affect your business and the steps to take if it does.

Any business located in Colorado that delivers taxable goods to a jurisdiction outside its current sales tax jurisdiction will now be required to charge and remit sales tax to the State based on the point of delivery for those taxable goods.  The State collects tax for many counties and special districts in Colorado; these taxes will also have to be charged and remitted where applicable.

For example:

          If your business is located inside the City and County of Montrose you are collecting and remitting                  7.95% tax as follows:
 
                To the State:           State of Colorado Sales Tax @ 2.9%
                                               Montrose Special District Tax @ .75%
                                               Montrose County Tax @ 1.0%
                To the City:             City of Montrose Tax @ 3.3%
 
         Should you also deliver goods inside the City of Ouray (Non-Physical Location) you will now have to               collect and remit 9.45% tax as follows (Ouray City and County taxes are collected by the State):
 
                To the State:         State of Colorado Sales Tax @ 2.9%
                                             City of Ouray Sales Tax @ 4.0%
                                             Ouray County Tax @ 2.55%
 
If you deliver taxable goods anywhere inside the State of Colorado these rules apply to your business.  Each City and County has their own tax rates and some of these are collected by the State and some are collected by the individual municipality.  It is your responsibility to collect and remit taxes to the proper agency. 
 
The State of Colorado has made accommodations to streamline the process of setting up Non-Physical locations.
If you already have a Revenue Online account:

1. Log into your Revenue Online Sales Tax Account.
2. Under “I Want To” click on “Add Non-Physical Locations.”
3. Follow the steps to add non-physical locations to your sales tax account.
4. Once you have completed your request, you will receive an email confirmation.

 
You do need to set up “Non-Physical Locations” for each tax jurisdiction where taxable goods are delivered.  Filing requirements will be the same as for your current sales tax filing: monthly, quarterly or annually.  Non-physical locations only require a return to be filed when sales are actively made in that tax jurisdiction for that filing period (month, quarter, or year).  Sales in a jurisdiction where a Physical Location exists always require a tax return to be filed, even when there are no sales for that filing period (month, quarter, or year).
 
If you do not have a Revenue Online Account you may file reports on paper, but our firm strongly recommends that you create an account.  Please contact our office if you need assistance with that process.
 
Cities for which the State does not collect local sales tax should be contacted directly.  There are two counties that self-collect (Pitkin and Weld) and 72 municipalities that self-collect.
 
 
Steps you need to take before December 1, 2018:

1. Familiarize yourself with the areas where you deliver taxable goods.
2. Set up all Non-Physical Locations with Revenue Online as soon as possible.
3. Update your Sales Tax Software to ensure that taxes are properly classified for ease of filing/remitting.
4. Update your customer records to ensure proper taxes are charged on invoices dated after 11-30-18.
5. Contact any “self-collected” municipalities where you deliver taxable goods.  Take the necessary steps to establish Sales Tax licenses where needed.
6. Establish a plan for collecting the proper amount of sales tax for all new jurisdictions you may deliver to in the future before the first sale is made.

 
Please contact our office if you need assistance or have further questions.