Are you planning on gifting something to your clients or customers this holiday season?
A reminder on what the IRS says about gifts to individuals:
1. You can deduct up to $25 of the cost of business gifts you give directly or indirectly to each person during a tax year. Note, if married and both you and your spouse give gifts to the same person, together you are treated as one taxpayer.
2. Minimal expenses such as engraving, packing or shipping are not included in the $25 limit if they do not add significant value to the gift.
3. The $25 per person rule does not apply to items costing $4.00 or less that have your company name permanently engraved on the item and which you distribute regularly for things like advertising.
4. Something that could be deemed either as a gift or as entertainment is usually considered entertainment and therefore cannot be deducted.
5. You should keep records that demonstrate the business purpose and cost of the gift.
Sounds like a lot of bah humbug written by Scrooge, right?
Sorry, but better to know now before you buy your favorite client a lavish gift with the thinking it is a total write off. But listen, feel free to buy that expensive gift if you wish as a token of your appreciation, just know it is most likely not a full tax deduction. As mentioned, if you have branded swag such as coffee cups or pens under $4 that does not count towards the $25 a year rule. Be mindful of the entertainment notation, skip hockey or football tickets.
It is also important to remember the $25 rule is for individual gifts only. If you gift a cookie platter or gift basket that costs $75 to the whole office staff, the entire cost is deductible. Keep those receipts and notate why the purchase was business related. Now, if we are talking about employees, best practice is to always report gifts in the form of W2 wages. Always consult with your tax advisor or preparer if you have questions. Now go order that cookie platter for your favorite client’s office.
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The information is provided for reference and informational purposes only. Presentation of the information does not create a client-business relationship nor does it constitute professional accounting, tax or legal advice.