Tax-free employee gifts
Workers
When throwing a holiday party, the business may claim a 100% tax deduction for the reasonable costs if the invited guest list is limited to the employees and their immediate family.
By employees that means all of them. This should be for the benefit of the rank-and-file workers, not just the highly-compensated people.
To reward only the highly-compensated people - they might go away on a working retreat, which could be 50% deductible.(100% deductible for tax years 2021 & 2022)
§ 1.101-2(a) Employees' death benefits holds that the general rule is an amount up to $5,000 which is paid to the beneficiaries or the estate of an employee, or former employee, by or on behalf of an employer and by reason of the death of the employee shall be excluded from the gross income of the recipient. This benefit is not for back-wages owed or accrued vacation pay.
Customers
When throwing a holiday party or golf outing or picnic where clients or customers are attending, then the costs are 50% deductible (100% deductible for tax years 2021 & 2022) if certain conditions are met: such as maintaining a list of attendees, their business relationship and having a substantial business-related discussion before, during or after the affair.
Everybody
A $25 per person, per year gift may be deducted by the business and it is usually tax-free to the recipient.
Example: if paying an employee a special, one-time $500 year-end cash amount, consider making one check out for $25 as a tax-free gift and for the remaining $475, have it grossed up to cover FICA, Medicare, Federal WH and State WH.
Gifts in excess of $25, for example sending a bouquet of flowers given to a customer who is ill is not deductible. That might even taxable to the recipient.
Entertainment is not deductible at all.