13 Uses for Leftover Halloween Candy & The Resulting Tax Consequences
Kelly Phillips Erb , Forbes Staff I cover tax: paying tax is painful but reading about it shouldn’t be.
Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.
Every year, a day or so after Halloween, my kitchen looks like something out of Willy Wonka & The Chocolate Factory: candy everywhere. And every year, a day or so after Halloween, it becomes a challenge to figure out what to do with all of the leftovers (trust me, we couldn’t possibly eat it all). This recurring dilemma inspired a post a few years back. It’s back again for an encore, updated for the new tax year, of course. Here’s your list of 13 uses for leftover Halloween candy, with a summary of the non-tax and tax consequences of ridding yourself of those extra candies:
- Give the really good stuff to your favorite tax professional *just because.*
Non-tax consequences: Everybody likes a gift – even the most serious tax nerd. Just be sure to pony up the Reese’s cups and Hershey chocolate bars and don’t try to sneak in your Mary Jane stragglers.
Tax consequences: None. It’s a gift so long as you’re not expecting anything in return and gifts are not taxable for income tax purposes. Unless you make a habit of giving your tax professional large gifts in excess of the annual gift tax exclusion (it’s $14,000 for 2016 – and stays at that amount for 2017), which I am in no way discouraging, you’re fine when it comes to gift tax, too.
- Pay your tax professional in chocolate.
Non-tax consequences: That’s a lot of candy. If your tax professional has a sweet tooth, he or she might appreciate it. Otherwise, they’ll probably insist on a traditional payment in the way of cash, check or credit card.
Tax consequences: Assuming that you can pony up enough good candy to equal the cost of your bill, and that your tax professional accepts candy as payment, the payment – even if in candy – is deductible as miscellaneous deduction subject to the 2% floor to the extent that it constitutes fees for tax advice or tax preparation. You must itemize to take this deduction, found at line 22 on Schedule A:
(Sorry, you miss out if you claim the standard deduction.)
- Pay your plumber or electrician in Snickers bars.
Non-tax consequences: See #2 above.
Tax consequences: None. Unlike the cost of tax advice, the cost of most personal services isn’t deductible for individual taxpayers.
- Take a bowl (or two) of candy to hand out to your colleagues.
Non-tax consequences: Your colleagues will be grateful to you for making them happy. Also fat. But mostly happy.
Tax consequences: Candy provided to your colleagues doesn’t qualify as a deduction – not even as an unreimbursed employee expense – even if you had paid for it to begin with. Qualifying unreimbursed employee expenses are deductible as an itemized deduction if they are paid or incurred during the tax year; used for carrying on the business of being an employee; and ordinary and necessary. An expense is ordinary if it is common and accepted in your trade, business, or profession and necessary if it is appropriate and helpful to your business. While your colleagues might argue that keeping M&Ms on hand is both ordinary and necessary, the Internal Revenue Service (IRS) would likely disagree.
- Keep a filled candy bowl at the office for your employees.
Non-tax consequences: Your employees will think you’re awesome, assuming that you give them the good stuff. Leave out a bowl of unrecognizable nougats and you’ll have a whole group of folks posting to Glassdoor.com before you can say butter brickle candy.
Tax consequences: None for the employer or the employee. There’s no out of pocket cost to the employer for candy that was gathered by little trick or treaters (although if you purchased the candy at a store for the sole purpose of feeding employees, it would be a business expense). Occasional snacks offered to employees at their workplace remain de minimis and are not includable for tax purposes: the IRS considers these items “so small as to make accounting for it unreasonable or impractical.” In fact, the Latin phrase de minimis translates roughly to “of little importance” – which means the IRS clearly doesn’t know how I feel about Junior Mints. But if you were touting hand-rolled truffles prepared by master chocolatiers a la Google, that could go beyond the scope of de minimis and could be considered a taxable benefit. Stick to what’s in the trick or treat bags.
- Exchange your Whoppers for other stuff.
Non-tax consequences: If you use a program like Halloween Candy Buy Back, participating businesses will “buy” back your candy in exchange for cash, coupons, and other creative exchanges; businesses then work with groups like Soldiers’ Angels to send candy to the troops. That should give you plenty of reasons to smile.
Tax consequences: Property held for personal use is considered a capital asset and you have to report any gain from a sale or exchange as a capital gain. Assuming that the candy is exchanged for an equivalent item, there should be no gain and thus, no tax consequences. But what if you lose out by exchanging a stash of Reese’s cups for a gift certificate to a restaurant that you’ll never step foot in? You can’t deduct losses from the sale of personal property (more on losses here). And don’t get fooled into thinking you can take a charitable donation for the exchange: you can only take a charitable deduction for gifts to qualifying organization to the extent that you don’t receive something in return: a buyback implies that you’re exchanging one thing (candy) for something else of value (coupons, etc.).
- Donate your candy to charity.
Non-tax consequences: Warm fuzzies. You did a good thing.
Tax consequences: Assuming that you make a contribution to a qualified charitable organization (check with IRS if you’re not sure), you can generally deduct the value of goods as an itemized deduction on your Schedule A. Document your gift and get a receipt from the organization. There’s one more caveat: in addition to the practical aspect of making sure that the organization actually wants your extra candy, if you’re donating property that’s not related to the charity’s exempt purpose, your donation may be limited. In other words, if you’re giving candy to an after-school program for homeless children, you can be reasonably sure that the program will use the candy to accomplish its charitable purpose. But if you donate that same candy to an art museum, not so much. So, use common sense when you choosing an organization – and a little courtesy (meaning, ask first).
- Use candy as prizes for bingo and card games.
Non-tax consequences: Kids, including big ones, love bingo. We play at our house because it’s fun, it’s easy, and notwithstanding some tricky advice from the seniors in my hometown, it doesn’t require much skill.
Tax consequences: Our family bingo games don’t have tax consequences because we play for peanuts – well, literally for peanut M&Ms, but you get the point. In general, bingo winnings are taxable to the winner as income on line 21 of your federal form 1040: it does not matter whether you the winnings are in cash or property (though clearly if you eat the winnings, they’re pretty hard to trace, not that I’m suggesting you evade taxation by this method). And in case you’re wondering if your unorthodox method of play really qualifies as bingo, there is a tax statute for that (of course). At your next cocktail party, feel free to drop this actual definition of bingo found in the Treasury Regulations:
- Use candy for tips.
Non-tax consequences: Okay, I’m not suggesting that you not give the paperboy a cash tip. But why not hand over some yummy candy as well? It can’t be a bad thing to be known as the house on the block that gives out the best tips ever. But that means you have to give out the good stuff – giving out Twizzlers and Necco wafers isn’t going to win you any kudos.
Tax consequences: It depends on who you’re paying. You can’t deduct tips to the paperboy or the pizza delivery girl. However, to the extent that you’re tipping the babysitter or other employees, tips are taxable to them (and thus likely deductible to you) – but see #10.
- Make gifts for the babysitter, maid, etc.
Non-tax consequences: Who doesn’t like getting a nice gift now and again? With a little ingenuity, you can fill a cute gift bag filled with candy: voila! Minimal cost and effort to let folks know they’re appreciated.
Tax consequences: No matter what you want to call it (a thank you, a bonus, a perk), a gift made to an employee is compensation as far as the IRS is concerned. However, there’s an exception for small non-cash gifts considered de minimis: those gifts are not taxable. So, a few Hershey bars in a gift bag would be de minimis and nontaxable – a tower of Godiva truffles, likely taxable, though clearly still delicious.
- Recycle your stash of candy at Christmas.
Non-tax consequences: If you put leftover candy in the freezer, you can recycle it for later. Money saved. Just be sure to sort out the candy with bats and pumpkins otherwise you’ll have to explain why Santa and the elves are handing out Halloween candy. Note to new parents: trying to make up a story about the “Christmas bat” almost never works.
Tax consequences: None. Even if you had paid for it, you can’t claim tax deductions for personal expenses like food or candy12. Conduct science experiments.
Non-tax consequences: Candy is pretty awesome and science is pretty awesome, so why not combine the two? There are all kinds of experiments on candy to keep your budding scientists interested, from melting Starbucks to floating Skittles (you’ll find details on those and more at Candyexperiments.com).
Tax consequences: There’s no allowable tax deduction for tutorials and extras to keep your kids at the top of the class since it’s considered a personal expense (exceptions exist for some special needs education). If you’re a teacher, however, the results are different. As part of the Protecting Americans from Tax Hikes Act (PATH Act), teachers can deduct up to $250 to buy classroom supplies (I would argue, depending on the use, that candy qualifies as “supplementary materials that you use in the classroom.”). It’s an above-the-line deduction which means you don’t need to itemize to take advantage. Of course, leftover candy doesn’t qualify for the deduction since you didn’t spend out of pocket but any additional sweets would qualify.
Admit it, though, deductible or not, you still really want to know the answer to this very scientific question:
- Eat it.
Non-tax consequences: Halloween candy is delicious. You might, however, have to explain to your son why you ate his Butterfinger without asking (pro tip: there is no right answer here). If you decide to sneak an extra treat, remember that there could also be potential long term effects like cavities and an extra pound or two.
Tax consequences: No immediate consequences. Dealing with some long-term consequences of eating candy, however, might be deductible. While you can’t deduct the cost of going to the gym or joining a weight loss program to get rid of those extra pounds, you can deduct dental expenses if you end up with a mouth full of Milk Dud induced cavities – but even I’ll admit that’s one heck of a way to squeeze out a deduction.