Your Guide to Tax Rules and Deductible Business Gifts for the Holidays
As the holiday season is now upon us, many businesses are planning to show appreciation to clients, employees, and partners through thoughtful gift-giving. Understanding how these gifts are treated in accounting and for tax purposes can help you plan effectively and ensure compliance.
Here’s a brief guide to help you navigate the nuances of business gifts.
GIFTS TO CLIENTS & BUSINESS CONTACTS
The IRS allows a deduction for business gifts up to $25 per person per year. This limit includes both direct and incidental costs. Keep in mind, items that are considered to be of nominal value, such as greeting cards, can often be excluded from this total.
GIFTS TO EMPLOYEES
Gifts to employees are generally deductible to the business and may be excluded from the employee's income as de minimis fringe benefits if they are small and infrequent. Examples include holiday gifts, small birthday presents, or other low-cost items. However, cash gifts, gift cards, or other equivalents must be reported as taxable income, regardless of the amount.
HOLIDAY SEASON GIFT COMPLIANCE & TAX TIPS
Promotional Items
Items that contain your company logo and are widely distributed generally do not count towards the $25 limit as long as they cost less than $4 each and are one of a number of identical items you distribute widely.
Plan Ahead
With a bit of planning and understanding of the rules, you can show your appreciation while staying within the guidelines that govern such expenses. If you have specific questions about what constitutes an appropriate business gift or how to properly document gift expenses, consider consulting with a tax professional.
With thoughtful planning and accurate records, you can maximize deductions for business gifts this holiday season while staying compliant. At MJ Webb Bookkeeping, we provide expert bookkeeping services to ensure your business maintains tax-ready books year-round. If you have questions about gift deductions or want to simplify your bookkeeping processes, contact us today!
Thank you for trusting us with your business needs. Wishing you a joyous holiday season filled with peace, gratitude, and prosperity!