Why the IRS Might Want to Know More About Your Business Gifts

Godiva chocolates, Tiffany plaques, awards and trophies and personalized briefcases are a few types of business gifts you can purchase for employees or clients as a way to thank them for their hard work and support. In fact, some companies (perhaps yours) create partnerships with vendors that sell individualized gifts at sizable discounts. It can be a win-win situation for all parties until the Internal Revenue Service (IRS) comes a knocking.  

The IRS allows you to deduct up to $25 for business gifts you “give directly or indirectly to any one person during your tax year.” Operate a business with your spouse and even if you both purchase and give the same person separate gifts your presents are recorded as a single donation. In other words, you both likely won’t be able to deduct the maximum $25, regardless of how much the gifts cost. However, whether you are married or single, you can take an additional deduction (above the $25) to cover the costs of items like engravings and shipping and handling. 

Creative Business Leaders Giving Out Team Gifts

Purchase a gift for each member of your team, and if each gift cost $4 or less and also has the name of your creative business on them, you are not limited to the $25 per person gift deduction. Keep in mind that the gifts must be distributed or awarded regularly to qualify you for the additional deduction. For example, if you award 10 gifts a month to top performing employees, you may qualify to take a larger gift deduction. You could also regularly award gifts to top sales professionals at your creative business. 

As with any tax deduction that you make on your federal returns, be prepared to present receipts and documentation to the IRS that proves you actually made the gift purchases. You may also want to indicate the name of the person who received the gifts and the reason the gifts were given (e.g. holidays, employee of the month). 

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Sources:

http://www.irs.gov/faqs/faq/0,,id=199658,00.html (Internal Revenue Service: Income and Expenses)