Cyber Monday and Black Friday have passed. You probably have bought a few gifts for others since then. Are any of them your business contacts? Then you may be wondering: are business gifts tax deductible?
1. Yes, They Are
All gifts bought for business purposes are tax deductible. This means you may buy gifts for your workers, clients, contractors, potential clients, assistants, cleaning services, and basically anyone who helps you make a buck on your business. However, the limit to any business gift is $25 per person. One gift per person. We recommend keeping detailed records of:
- Who you bought the gift for.
- How they are related to your business.
- Where and when you bought the gift.
- How much you spent on the gift.
The good news is this doesn’t only apply to Christmas and other holiday gifts. This applies to any gifts given for birthdays, administrative assistant’s day, and others.
2. More on the $25 Limit
Did you know this dollar limit has been in effect since 1962? In today’s dollars that would be nearly $227. The good news is you can spend as much as you want on any individual. However, you may only deduct $25. For example, if you buy them a $50 gift, you deduct the $25 maximum, and leave the rest off of your taxes. One the other hand, if you buy a $20 gift, you may only deduct that $20.
3. Exceptions on the Business Gift Credit
Business gifts to a married couple are an exception. You must have a business connection with both spouses, and the gift must be for both of them. In these cases, the $25 business gift limit doubles to $50. Costs associated with the gift may also be deducted past the $25 limit. For example, it is possible to deduct expenses such as shipping and handling, insurance, warranties, engraving, monogramming, and any other costs directly associated with the gift. While gifts to individuals may have a limit, gifts to an entire entity may be fully deductible. However, these gifts must be given to the entire company, not just an individual.
Gifts to an entire business are not subject to the $25 limit. Business gifts given to a company for use in the business aren’t subject to the limit. For example, a gift of a water cooler or coffee machine to a business for its employees to use while doing their work may be fully deductible because it is used for business purposes. Check with your local bookkeeper to be sure.
Be aware you may not deduct entertainment expenses given as gifts such as event tickets, travel, dinners, shows, etc.
You may view more by visiting the official IRS page on business gifts.
More on Are Business Gifts Tax Deductible?
Finally, feel free to contact the staff at B&J to get help filing your small to mid-sized business taxes. We can help you correctly make all your eligible deductions, credits, and more.