Business Gifts and Tax
Deductions
Your generosity has its tax limits
The tax code does not
prohibit a tax deduction for corporate gift-giving; however, the deduction
you may take during tax preparation is
limited to a certain dollar amount. The deductible limit on business gifts
is $25 a year to any one customer or client. You can’t get around the $25
limitation by making separate gifts to family members of your client. Nor
can you exceed the limit by having your spouse also make a gift to the
same client, even if your spouse has a separate business relationship with
the client.
The IRS does allow a tax deduction for gifts of nominal value beyond the $25.
Deductions include the cost of promotional gift items that cost $4 or
less, such as pens or calendars on which your name is imprinted.
Incidental expenses for the costs of engraving, wrapping, and mailing the
gifts are also allowed as a deduction.
So, if you buy a
client a gift that costs $25, spend an extra $4 to wrap and mail it, and
then give the same client a $4 coffee mug with your company’s name on it,
you can deduct a total of $33 as a business expense on your tax return.
When it comes to gifts
made to employees, the rules are a bit different. Generally, gifts to
employees are treated as bonuses and included on their Form W-2, subject
to payroll tax. Gifts of nominal value, such as a holiday turkey, are
treated as de minimis fringe benefits. According to the IRS, a gift to an
employee is de minimis if the value is nominal, accounting for the item
would be administratively impractical, the gift is provided infrequently,
and the gift is made for the purpose of promoting health or goodwill to
the employees.
If you give your
employees cash, gift certificates or other similar items that can be
converted to cash, the value of these gifts is considered additional wages
or salary, regardless of the amount.
