Tis the season for gift buying and giving, but did you know the tax man may be keeping track of it all? You can stay a step ahead by knowing what you can and can’t buy, what can be claimed, and other bookkeeping goodies we will share below.
1. Business Gifts are Deductible
Have a generous client who always treats you right? It’s almost obligatory to get them a little something for the holidays. And for those of you who do, you may be allowed to deduct the amount of the gift from your yearly taxes when filling out the long form. So how much can you splurge per gift? As much as you like, but you will only be able to claim $25 per total gifts per person each year. However, there is no limit as to how many people you may give gifts to.
Why so low? The number was set in 1954, and while other tax rates continue to rise, this one seems to be set in stone.
2. Only Business Gifts are Deductible
Sure, your spouse or partner may help you in your business ventures, but if they are not on the payroll, they’re not on the allowable deductions for their holiday gifts. Yes, it’s a bummer, but if we all got to deduct personal gifts (even at $25), we’d all be able to write off hundreds if not thousands of dollars in gift expenses.
3. No Extras or Add-Ons
Sure, the gift you buy may have come with tons of extras, but they in general cannot be deducted. For example, costs such as shipping, handling, gift wrapping, and engraving don’t really add any value to the gift and may not be deducted. However, a $20 gift card that comes with a free $5 appetizer may be added to the value of the gift.
4. Everyone Likes Entertainment
So is there a loophole in all of this gift giving and deductions? In a sense, yes. If you elect to buy entertainment as a gift, such as tickets to a sports event or concert, you may deduct 50% of the cost. So for those of you looking to spend $50 or more per client can make as much or more back on deductions if you buy your clients and business contacts entertainment instead of a sweater. However, you may not attend the event with your gift recipient.
5. Promotional Gifts
Is your fridge covered with magnets from local businesses? This is probably because these are exceptions to the gift giving rule. According to the IRS, “many businesses give customers and clients small promotional items such as key chains, pens, and plastic bags. Items that cost $4 or less, have your company name clearly and permanently imprinted on them, and are widely distributed may be deducted without limitation.”
6. Cash is Acceptable
Okay, it’s not acceptable as a business gift, but parents, grandparents, and the like are known to give cash gifts to family members, and of course, there is a gift tax that comes with it. The annual gift tax exclusion amount is $14,000 for 2015, which is the same as 2014 but higher than $13,000 a year in 2013. This means you may give away $14,000 to as many individuals as you’d like, including to children, relatives, and others. For example, a couple could make $14,000 gifts to each of their four children for a total of $112,000 and not qualify for the gift tax. Gifts for medical, dental, and educational expenses for as many friends and family as you’d like are allowable without tax if you pay the provider directly.
7. Keep All The Details
The IRS especially pays attention to gift giving during tax time and has special rules for how one may deduct gifts. In the event of an audit, it is essential that the filer have a record of
• The date of gift purchase
• Name of the business associate or client the gift is for
• The cost of the gift
• The itemized receipt
Houston Bookkeepers
And if you are in need of expert bookkeeping services to help with taxes and other matters in Houston or the surrounding area, please contact me.