Commercial Rental

[S T]

This is all relating to Tax Year 2010 - I realize it might all change for 2011-2012

Have a client that owns a 7-10 unit commerical rental (retail-office space)
IThe Bldg (one unit) is in process of work for tenant improvements for new tenant occupying Sept 2010 (tenant improvements-buildout would be under depreciation rules)

Sub-Contractors (under the General Contractor ) have done an extra-oridinary job of deadline timeframes, and client would like to give the subs extra (outside of the General Contract as a Thank you) a token of their appreciation - question can this be done as gift cards - say $25 - $50 to local restaurants, Walmart, Gas Cards, etc.

And if so, would the expense be under repairs maintenace on the Schedule E, or where would you expense the deduction on the Owner's Schedule E? No tax reporting ?

Thanks,

Sandy

[AJsTax]

they are compensation

just as any other bonus or pay would be. So, yes it can be done and would be a contract expense to the building owner and income to the subs, reported however their income is being reported, by the general contractor or the the building owner.
Now, I am sure the argument could be made that the general is paying the subs and issuing the 1099s for their work, and the building owner paid the extra so would be responsible for the reporting and as the amounts most likely would not exceed $600 they would not go on a 1099. I am not sure if that would fly in an audit, but could be argued that way.
How ever it is reported it is still compensation to the contractors that receive them and must be reported on their sch C.

[Davc]

If your client is paying for the improvements, then the gift cards would be capitalized as part of the costs to be depreciated. If the incoming tenet is paying, then I'd say your client doesn't report at all on their return. Agree it's SE income to the recipients.

[JG EA]

...

and client would like to give the subs extra (outside of the General Contract as a Thank you) a token of their appreciation - question can this be done as gift cards - say $25 - $50 to local restaurants, Walmart, Gas Cards, etc.

And if so, would the expense be under repairs maintenace on the Schedule E, or where would you expense the deduction on the Owner's Schedule E? No tax reporting ?

Thanks,

Sandy

IWhat about counting them as gifts - limit $25. Then deduct that under the other expenses on E. (Pub (527) says to go to the pub on ...gifts...)

[Burke]

IWhat about counting them as gifts - limit $25. Then deduct that under the other expenses on E. (Pub (527) says to go to the pub on ...gifts...)

Can't, IMO, because they are gift CARDS -- treated as cash -- not qualified under "de minimis" rules. Agree with others that they are addl compensation due to relationship.

[JG EA]

Can't, IMO, because they are gift CARDS -- treated as cash -- not qualified under "de minimis" rules. Agree with others that they are addl compensation due to relationship.

But it says in Pub 463 that you can count entertainment as gifts so it would work if it were to a restaurant.

[S T]

Gift Card Restaurant

This discussion is helpful and why I posted, as I could not discern how to treat "Gift Cards" as a Thank you for extra effort to SUBS (outside of the General Contractor)

If gift card to restaurant is given - would it then be subject to 50% disallowance?

Sandy

[JG EA]

It is a gift not a meal expense in the course of business. But just up to $25.

[Davc]

If gift card to restaurant is given - would it then be subject to 50% disallowance?

Sandy

It would still be a cash equivalent. A certificate valid for a particular menu item would not be considered as cash.