If my friend was to buy 5k in Amazon gift cards for himself before the year end knowing that he was going to spend those during the 2019 fiscal year, with the idea that he would be writing this off as business expenses in 2018 to avoid income tax, would he get in trouble if he were audited by the IRS?
It would appear to me that this isn't tax fraud, but I would be aware of how you are going to write this off.
Are they gifts for employees/vendors/clients? In which case, it would be limited to $25 per person: https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-8
You probably won't be able to Section 179 deduct that type of purchase: https://www.irs.gov/publications/p946
I've also read that you're only going to be able to deduct on purchases that would be in the ordinary use of business.
Software developer buying a tractor... probably not going to fly.
Giftcards for your business... if you can justify it.
- If you (or your friend) buy a gift card, that's not an expense in itself, it is an asset swap: for x money (asset) you get x gift card (asset). The asset swap doesn't change profit and thus doesn't have any influence on taxes.
- The next transaction is that the gift card leaves the business (the asset is used).
- If that happens next year when the gift card is used to pay for something (instead of money), that's an expense for the business and treated like any other expense next year. Also, whether and how much is deductible depends on what is bought - and that isn't known when the gift card is bought.
- If they give it away to some 3rd party, the usual rules whether/which fraction of a gift can be deducted as business expense apply. (In my country they are rather tight and very burocratic. And that's the only point in this list where a difference between gift card and money exists: directly giving money is never tax decuctible).
- If your friend buys something for themselves, that's a personal draw. I don't know much about US business legislation, but in my country it would depend on how the business is set up how this is handled. I don't think that the treatment differs whether the personal draw is done as gift card or money (or, for the sake of completeness: as goods) though.
- profit and taxes are affected in the year when the asset leaves the business and
- there's no difference between gift card and money (other than the gift card being less liquid) if the gift card is used for business or privately by the owner.
- In my country, the only scenario where the gift card is treated differently from money (and where it actually does make sense to buy a gift card) is when a 3rd party receives the gift: this may be deductible as business expense / tax deductible whereas handing over the same amount of money is not.
An example would be giving an employee for their birthday some flowers which is (tax-wise) the same as a florist gift card but handing over the same amount of money is treated as wage.