11 Uses for Leftover Halloween Candy (And The Resulting Tax Consequences)
Forbes Contributor Kelly Phillips Erb lays out the critical tax implications of giving the leftover candy away.
Apparently, the geek apple doesn’t fall far from the tree.
This weekend, my kids counted, sorted and made charts representing their individual candy distributions. They had the most fun figuring out which candy company made which candy and then tallying how much of their stash came from which company. In our house, Hershey came out on top which led to a quick query on Twitter whether that might just be a Pennsylvania thing (it turns out that it might be – according to Candy Industry, Mars is the #1 candy company in the world, Nestle checks in at #4 and Hershey is #5).
There was a lot of candy to count (and chart). My little Ghostbuster, Medusa and Black Widow did alright this year. We had to cut them off at some point because they will never, ever eat all of that candy. They love the idea of it but really, we’re not big candy eaters at our house (if folks handed out bacon at Halloween, this post would have a very different ending).
I’m always challenged to figure out what to do with all of the leftovers… which inspired a post a couple of years back. It’s back for an encore – updated for the new tax year, of course. Enjoy!
So being the tax geek that I am, I’ve compiled a list of ten uses for leftover Halloween candy, together with a summary of the non-tax and tax consequences:
1. Give the good stuff to your favorite tax professional out of the kindness of your heart.
Non-tax consequences: You win undying gratitude of your tax professional so long as you pony up the Reese’s cups and Kit Kats and don’t try to sneak in a Mary Jane or a Now and Later.
Tax consequences: None, really. It’s a gift. And unless you make a habit of giving your tax professional large gifts in excess of the annual gift tax exclusion ($14,000 for 2013 and 2014), you’re fine. Note that I’m not necessarily discouraging this behavior.
2. Pay your tax professional in chocolate.
Non-tax consequences: Even with the price of goods on the way up, 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 the bill (and that your tax professional accepts candy as payment), the payment – even if in deliciousness as opposed to cash – 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 23 on Schedule A.
3. Pay your plumber, electrician or cleaning service in Snickers bars.
Non-tax consequences: See #2 immediately above.
Tax consequences: None. Unlike tax advice, the cost of most personal services isn't deductible.
4. Take a bowl of candy to work.
Non-tax consequences: Your colleagues will be grateful to you for making them happy. Also fat. But mostly happy.
Tax consequences: None, really. Unfortunately, candy provided to your work colleagues doesn't qualify as an unreimbursed employee expense. Qualifying unreimbursed employee expenses are deductible on a Schedule A at line 21 to the extent that they are paid or incurred during your tax year; used for carrying on your trade or 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 chocolate covered peanuts are both ordinary and necessary, the IRS would likely disagree.
5. Exchange your Mike and Ike candies for other stuff.
Non-tax consequences: If you use a program like Halloween Candy Buy Back, participating dentists will “buy” back your candy in exchange for cash, coupons, toothbrushes and other creative exchanges; the dentists then send the candy to Operation Gratitude or other military support groups. That should give you plenty of reasons to smile.
Tax consequences: Property held for personal use (and not investment) is considered a capital asset and you have to report any gain as a capital gain. Assuming that the candy is exchanged for an equivalent item, there should be no tax consequences. Conversely, you can’t ever deduct losses from the sale of personal property, even if you seriously lose out by exchanging a stash of Reese’s cups for a gift certificate to a restaurant that you’ll never step foot in. All of this, of course, assumes that you’re not in the business of buying and selling candy – that’s a whole other analysis.
Don’t get fooled into thinking you can take a charitable donation for the buy back: you can only take a charitable deduction for gifts to qualifying organization to the extent that you don’t receive something in return. Most dentists aren't charitable and an even buyback necessarily means that the cost of any deduction is offset by the exchange.
6. Pawn your stash off on the kids at Christmas.
Non-tax consequences: If you put it in the freezer now, you can recycle it for later – voila! Money saved. Just be sure to sort out the candy with bats and pumpkins from the more traditional candy 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. You can’t claim tax deductions for personal expenses – whether eaten at Halloween or Christmas. And, of course, this wasn't your expense to begin with…
7. Donate your candy to charity.
Non-tax consequences: Warm fuzzies. You did a good thing.
Tax consequences: This one depends. 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 (ask first).
8. Use candy as prizes for bingo (and card games).
Non-tax consequences: Kids – including big ones who might happen to be tax attorneys – love bingo. We play for fun at our house. It helps the kids recognize letters and numbers and makes for a fun family activity. We don’t actually play for real prizes, except when Grandpa is involved, in which case the stakes are much higher (and involve bragging rights and possibly end in a skirmish or two).
Tax consequences: Our family bingo games don’t have any tax consequences because we play for peanuts – okay, literally for peanut M&Ms, but you get the point. However, 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 statute for that. At your next cocktail party, feel free to drop this actual definition of bingo found in the Treasury Regulations:
“A bingo game is a game of chance played with cards that are generally printed with five rows of five squares each. Participants place markers over randomly called numbers on the cards in an attempt to form a preselected pattern such as a horizontal, vertical, or diagonal line, or all four corners. The first participant to form the preselected pattern wins the game. – 26 C.F.R. § 1.513-5
9. Use it 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 the licorice whips 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, technically tips are taxable to them (and thus likely deductible to you) – but see #10.
10. Make gifts for the babysitter, the cleaning service, etc.
Non-tax consequences: Who doesn't like getting a nice gift now and again? And with a little ingenuity, you can make a pretty cute gift box or bag filled with candy “just because” – minimal cost and effort for a potentially nice moment.
Tax consequences: Gifts to employees are not really gifts. 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 to this rule for small non-cash gifts which are considered de minimis. Those gifts are not taxable. So, a few Hershey bars in a cute box would be de minimis and therefore nontaxable – a tower of chocolate, not so much (taxable, though clearly delicious).
So there you have it. Ten uses for all of that extra Halloween candy.
If none of those appeal to you, you can always go with bonus use #11: just eat it.