Most everyone loves to get gifts. And I remember how exciting it was to have corporate gifts delivered to my office. I love to give gifts, too. Yet as business owners, there is a question around what is, and isn't tax deductible.
Today's brief article gives you the details straight from the source: the Internal Revenue Service. And before we go any further, just remember, always check with an accountant to see what rules apply to your situation.
For an extensive explanation of Travel, Entertainment, Gift, and Car Expenses, read Publication 463 from the IRS. It tells you everything you need to know about what expenses are deductible, how you should report them, the records you need and how to treat expense reimbursements.
You CAN deduct all or part of the gifts you give while doing business. There are some limitations, though.
$25 is the limit directly or indirectly to each person you give a gift to during your tax year (I know, that amount seems almost laughable).
You don't have to count incidental costs (like shipping or engraving) in the $25 limit, unless it adds significant value to the item(s).
If you give gifts that have your business branding, and the individual cost is $4 or less, and you distribute these items regularly (like mugs, caps, pens, etc.), the $25 limit doesn't apply. [So, if you want to purchase a premium brand of coffee for your coffee loving client, and it totals $25, you can add your company's logo mug with no problem.
Here are a couple of things to consider:
Can the gift be classified as either a gift or entertainment? The IRS rule says you have to consider it as entertainment, and you cannot deduct the expense. So, no golf, theater or event tickets.
You must keep records, to prove both the business purpose of the gift and the details.
Gifts to charities can be deducted on your personal taxes if you itemize and are a sole-proprietor or a single-member LLC. If you pay the donation out of your business account, track it as a subaccount under owner draw to make it easy to find and add at the end of the year.
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