Small Business Taxes & Management

Special Report

Business Gifts


Small Business Taxes & ManagementTM--Copyright 2014, A/N Group, Inc.


For many businesses gift giving is just as important as taking clients to lunch. Try telling that to the IRS. There is a $25 limit, per donee, per year, on gifts to individuals. It's pretty hard to find a gift that will impress clients that costs $25 or less. You can of course, give items worth more, you just won't be able to deduct the amounts over $25.

There aren't many loopholes here, but there are some points to consider:

Incidental costs are not included in the $25 limit. For example, the cost of engraving, insuring, packaging or shipping the gift. A cost is incidental if it doesn't add to the value of the gift. Ornamental packaging isn't incidental if it has substantial value compared with the cost of the fruit, flower, etc.

The $25 rule doesn't apply to an item that costs $4 or less and has your name clearly and permanently imprinted on the gift and its one of a number of identical items you widely distribute. For example, tote bags with your name. It also doesn't apply to signs, display racks, or other promotional material to be used on the business premises of the recipient.

There are recordkeeping rules here too. You've got to be able to document:

Gifts to employees come under a different rule. De minimis gifts (noncash gifts with a small value such as a holiday turkey) aren't taxable. Otherwise the gift is taxable unless it qualifies as an employee achievement award for service, performance, etc. Special rules apply to these awards.

You've got to be creative to provide some benefits to your clients without running into the limitation. For example, rather than giving holiday gifts, invite them to a party that can be deducted. If you own a women's apparel store, throw a fashion party. A marketing firm could host a seminar at a local restaurant. Review the rules with respect to meals and entertainment first.

Look at your own situation and try to arrive at an approach that will gift you the most mileage for your money.


Copyright 2014 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 03/25/14