IRS Audit, IRS Problems, Tax Audit Help

Are Business Gifts Deductible?

December 13, 2012 - IRS Audit, IRS Problems, Tax Audit Help

Tis the season for gifts. Are you a gift giver? Is your gift giving deductible? I have talked before about contributions on my blog in this post. If you give to a qualifying charitable organization your contribution may be tax deductible. Giving a gift is a little different than making a contribution. Giving a gift is more personal. Contributions to an individual are generally not deductible. Generally means most of the time. Is there any time when giving to an individual CAN be deductible?   Are You a Business? Yes, if you are in business! Whether you are a corporation or a sole-proprietor, you may deduct your gifts. There are a couple of rules. One, the deduction is limited to $25 per person per year. And a married couple is considered “a person.” Two, there must be a valid business relationship between you and your business and the recipient of your gift. I tell all of my clients, do not let the tax laws rule your life. If you want to give a gift worth more than $25, do it! Just know that your deduction is limited to $25. When you spend more than $25 on one gift (or on one person/couple per year), the amount over $25 is just not deductible; it would be considered a personal expense.    Who Do You Know? Who do you have a business relationship with? Do you have vendors? Suppliers? Business associates? Referral partners? If you are an employer, you have employees. If you give your employees a gift over $25 you would include the excess in their paycheck. like a bonus. Is it possible to find a decent gift for less than $25? Yes, of course. I got some really good information from my friend, Deanne Marie. Deanne’s book, Gift Giving for Busy People, is full of great information. You can get the Kindle version by clicking this link. Deanne says, Every gift should ideally have four qualities:

1. Instant gratification. Does it have a great smell, taste, sight or sound?
2. Long-lasting. Is it something that can be used again and again?
3. Sentimental. Does is connect with a shared experience or something close to their heart?
4. Educational. Does it share interesting information or give a new perspective?

  When I interviewed Deanne on my radio show, we talked about gift cards. Did you know that  one-fourth of the people who get gift cards never redeem them? Do you have a gift card parked at the bottom of one of your drawers? 60% of the people who do use their cards, will spend more than the value of the gift card. We even talked about re-gifting, when that might be appropriate, and how to protect yourself from giving a gift back to the person who first gave it to you. (Ooops!) Now, think about it. This re-gifted item did not cost you any money, so it is, of course, NOT deductible. Download the recording of this interview, or any of my archived radio recordings, at http://rockstarradionetwork.com/shows/bulletproofyourtaxes.   Gift giving is not limited to the holiday season. Keep the records necessary to support your deduction. And remember, your tax deduction is limited to $25 per person (or couple) per year.   To your lowest legal tax, Nellie T Williams, EA