Question

4. Meals and Entertainment, Business Gifts (LO. 1, 4)

Jan owns the Mews Bar and Grill. Every year at Christmas, he has a party for his 20 employees and their families. This year's party cost $1,600. At the party, Jan presented each employee with a $50 gift certificate redeemable for merchandise at a local department store.

a. If the gift certificates are deemed de minimis fringe, how much can Jan deduct for business and gift expenses?  
$____________.

b. Assume that the party is attended by 10 employees and 10 of the Mews's major suppliers. At the party each receives a holiday cheese basket that cost $30.

How much can Jan deduct?
$____________.

Answer 1

A. Normally gift certificates that are redeemable for general merchandise are not de minimis benefit and are taxable.But in this case assumed as de minimis benifit in that case Jan can claim whole amount as business and gift expenses.As long as pary held primarly for employees then party expenses are deductible.So total deductible expense =$1600+20*$50=$2600

B. Non cash benifit of minimal value such as gift basket to employees mostly not taxable those are called de minimis benifit cost should be less than $75 per Employee , in this case cost is $30 so deductible for Employees 10*$30 = $300

And for customers and suppliers deduction is limited to $25 only per customer so, in this case deduction would be great 10*$25= $250

Total deduction = $ 300+ $250= $550.