Business Gifts and Your Tax Return

It is the season for giving but remember that the IRS does not exactly share the spirit of the season.  There are issues related to gifts that could have an impact on your tax return, so make sure that you are aware of them.

This post is about business gifts.  Look for info regarding personal gifts in a future post.

The general rule is that a gift is fully deductible as long as the value is not greater than $25.

  • The $25 limit applies per recipient per year. If a business gave their best customer a birthday gift in June, the Christmas gift might be non-deductible.
  • You are allowed to wrap the gift. The cost of the paper is not included in the $25 limit. The same goes for the cost of engraving or mailing.
  • Did you ever walk into a bank and get one of those free pens with the company logo on it? The bank can deduct it. That type of item is considered a promotional item and is not a gift for this purpose as long as the value if $4 or less.
  • Otherwise allowable entertainment expenses can sometimes fall under the $25 rule. For example, a business gives football tickets to a customer.  If a representative of the business does not attend the game with the client, the tickets can be treated as gifts.

What about gifts to an employee?  The general rule is that there is no such thing as a gift to an employee.  Anything given by an employer is taxable compensation that is included on form W-2.  That includes the Christmas bonus.

One more thing – gifts to your boss are not deductible.  Deductible gifts go from the top down, not bottom up.

For more information, contact our office.

Sign Up for Our Newsletter...

Receive important updates, articles and tips, delivered straight to your inbox.