Are you buying gifts for your very best clients this season? How about your employees, do you offer them a gift or a bonus for work well done?
The holidays are a time to express your appreciation and sometimes business owners do that with a holiday gift. But, what do you buy your best clients? And, can you write it off on your taxes?
I’m going to help you with what to buy in a minute, but as far as writing off those gifts, yes, you can write off a business gift, but there are some limitations:
- $25 LIMIT – The IRS says you can deduct all or part of a gift given in the course of your trade or business, as long as it doesn’t cost more than $25. Consider giving a gift that gives back, like donating to your client’s favorite charity in their name. You may also consider giving books related to your line of business, inspirational books, or journals to write in. These gifts tend to cost less than the IRS limit.
- INDIRECT VS. DIRECT GIFT – You can either give a gift directly to a client or indirectly to the client’s company. If you give a gift to a member of your client’s family, the gift is also considered indirect and can be deducted from your taxes. However, the rule only applies if you have a “bona fide” independent business connection with that family member and the gift is not intended for the customer’s eventual use.
- # OF DEDUCTIONS -If you and your spouse each give a gift to the same client, you can only deduct it once. You and your spouse are considered one taxpayer. The funny thing is that even if you don’t work together, you have separate businesses, you are separately employed, or have independent connection with the recipient, you can only make one deduction. The same goes if you and your business partners give the same person multiple gifts, your bookkeeper or accountant will only be allowed to take one deduction.
- INCIDENTAL COSTS AND PROMOTIONAL GIFTS DON’T COUNT – Costs like engraving a gift, packing, mailing and insuring a gift do not count towards the $25 IRS limit. Also, promotional gifts that cost $4 or less and have your company name on it, and are part of a number of identical promotional items that you widely distribute, also do not count.
That being said, DON’T give your clients a promotional product for the holidays. Consider giving a magazine subscription, a fun membership like fruit of the month or Dollar Shave Club or if all else fails, give a food basket of your client’s favorite foods. I find everyone likes to eat!
Giving a gift to someone who has helped you or has supported your business is a good idea. The bonus here is that you can write these items off, so if your bookkeeper or accountant isn’t doing that, then forward them my newsletter or even better, give me or one of my Brigade Bookkeeping team members a call. We know the IRS rules can be confusing; we’ll help you navigate through them in order to help you save money.
Have a festive week, and say no to Bah Humbug and yes to Happy Holidays!
