Hi, I’m Bette Hochberger, CPA, CGMA, and Christmas time is right around the corner, and as we all know, this means holiday music and gifts. On today’s #TaxTipTuesday, I want to explain what qualifies as a business gift, how much you can deduct from your taxes, and answer some of your frequently asked questions about business gifts. Let’s get started!
The tax law applied to business gifts is that you can’t deduct more than $25 per person. So you must look at how much money you plan to spend and decide whether it would be better if you deduct the present as a business gift or as some other form of giving (meals, promotion, 1099-NEC).
- If you give a snowglobe worth $50 to a client at an office holiday party, you will only be able to deduct $25 worth.
- But say you wanted to take a client to a nice dinner, it might be better to claim this as a business meal since you can deduct up to 50% of the cost, which will likely be more than $25. Make sure you follow all the rules to deduct business meals.
- Maybe, your company has an event where you give out branded t-shirts for free to anyone who stops by your booth, and one of your clients comes and grabs some; this is considered a promotion, and promotions are 100% deductible.
- What if you give an employee cash? Cash is not a business gift; include this in payroll, or if it’s over $600 and they aren’t your employee, provide them with a 1099-NEC.
The $25 limit is small because the amount hasn’t changed since 1962, so if you are looking for a way around it but aren’t convinced it will be able to pass as anything other than a business gift, there are a few exceptions.
- Incidental costs – meaning the cost of packaging, shipping, and engraving can be deducted on top of the $25. So, if it cost $10 to ship the $50 snowglobe, your total deduction would be $35.
- Gifts to a business – the $25 limit only applies to direct and indirect business gifts given to an individual. So gifts given to a company for use in the business aren’t subject to that pesky limit. For example, a gift basket given to an office for everyone’s enjoyment – that would be a gift to the business and fully deductible. Whereas a gift basket given to just the owner would not.
Please remember to document your spending! Best practices include keeping a description of the gift, the gift’s cost, the date the item was purchased, the business purpose of the present, and the business relationship to the taxpayer of the person reviving the gift (employee, client, prospect).
Honestly, if you want to get 100% of your business gift deducted, give them something permanently branded; this way, it can be categorized as promotion or advertising!
Anyway, that is it for this #TaxTipTuesday! Let me know on social what you plan to give to your business associates this year? See you next time!