Gifts as tax deductions: Can I get away with it and if so, how?
We all love a cheerful giver. If you can deduct gifts for your business, however, you’ll be even more cheerful! Sometimes we’re grateful for a customer’s loyalty so we send them a Christmas card. Sometimes we’re building referral relationships so we send a box of chocolate. Other times we are being generous for reciprocal purposes, hoping our generosity will make it easier for people to enjoy doing business with us. It isn’t until after the gift has done its job (or hasn’t), that we ask ourselves: Can we deduct it?
First off, you can deduct up to $25 off of any gift that goes directly or indirectly to someone related to your business (like a customer). Indirectly means you send the gift to the customer’s family instead of directly to the person you do business with. This is the case whether the business is just you or you and your spouse.
For example: You give a customer a coffee maker that costs $75. Congratulations, $25 of that $75 gift is tax deductible. Even if you and your spouse each contribute for that coffee maker, the only deduction you can claim is $25.
Another example: If you give 4 of those expensive Korean yellow pear gift baskets to different people at the customer’s company, and each of them cost $20. You can deduct all $80 of your purchase.
Things that cost less than $4, and are things you could consider ‘company merchandise’ (Pens, magnets, bags) or advertising like signs, display racks, and advertisements are NOT gifts. These are basically marketing materials. You might be able to claim a bulk purchase of these things as a marketing expense, but you can’t claim them as gifts.
You Can’t Deduct Gifts For Your Business if They are Entertainment… Probably
I saw ‘probably’ because some things may not be ‘fun’ to most people (work) but you might happen to enjoy doing it.
According to the IRS: You can’t deduct dues (including initiation fees) for membership in any club organized for business, pleasure, recreation, or other social purposes.
That means no deductions for yachts, nightclubs, concerts, vacation homes, golf clubs, country clubs, or airline clubs. Some countries do allow these deductions (I’ve heard Japan is more open minded about these things). However, according to the IRS, if it could be considered either a gift or entertainment, they will default to categorizing it as ‘entertainment’, and you don’t get the deduction.
For more information on tax deductible expenses on gifts, see publication 463.
Packaged foods are always a safe bet, and most people love to eat. My favorite is to give nuts (but not peanuts because so many folks have allergies these days). They’re good for Vegans, Keto, Kosher, Halal, and even most Carnivores are loath to turn down some good nuts.
To track your expenses I recommend two things: accounting software, and a bookkeeper who can use accounting software to find those deductions. Your bookkeeper should also help lower your expenses and giving you the needed business reporting to make your next moves easier and more obvious. Schedule a call with me and I’ll show you how a second set of eyes can save you 80+ hours per year and make your business life a lot easier.
Leave a Reply