Business Gifts and Tax Deductions

In a very short time, we will be totally immersed in the world of Christmas shopping and gift giving. As a business owner this doesn’t just mean finding the gifts for family and friends. It also means most likely be giving gifts to thank the customers and business associates that have helped your business over the past year.

While you want to be like Santa to your customers, the IRS wants you to temper that with at least a little bit of Scrooge. They have a limit on how much of your business gifts are tax deductible. Business gifts in the course of your trade or business are deductible if you follow these rules:

• Up to $25 per recipient per year (a recipient is considered an individual or a married couple).
• Incidental costs, like engraving, gift wrapping, or mailing are not subject to the $25 limit as long as they do not add to the value of the gift.

Even Simple Tax Deductions Can Get Complicated

Sounds simple enough, but now it gets a little tricky. If your gift could also be considered entertainment, such as tickets to a football game, the gift is normally considered entertainment and subject to the 50% limitation on meals and entertainment instead of the $25 limit on gifts.

However, if you give tickets to your clients and then do not personally attend the event, we can choose the most advantageous treatment, gift or entertainment.

Just like most things revolving around the holidays, it can get a little complicated. Keep in mind that even if you don’t understand the rules completely, your best bet is to keep good records. Then discuss it with your CPA to you know the best way for you to take the deduction.

Keep a record of the gift and cost, who you gave it to, and a brief description of your relationship.

Follow the tax rules and keep good records and you’ll be giving yourself an extra little gift on your tax return.