Industry News - Regulatory Updates
March 20, 2012
Tax deductions and business giving gifts
Giving a customer or his or her family anything free of the expectation of compensation or payment is a gift, as far as the IRS is concerned.
Business gifts are limited in amount to $25 per recipient. This means that items worth that much could be given to multiple customers and be tax deductible, but giving anything of greater value would be only partially deductible. Gifts of this sort may also be presented to employees at a different company which has a business relationship with the giver's.
If the item is sent to family members of a customer, it can be counted as a business gift unless the giver has some other connection to the family, in which case it might be a personal gift between individuals instead. Businesses which have small promotional items that they distribute freely, such as pens, do not have to count them because they typically cost $4 or less, which the IRS does not consider significant or count towards the $25 limit.
If gifts are in the form of tickets to some type of entertainment, they can be counted as either a gift or entertainment expense. An exception occurs when the giver attends along with the receiver, in which case it must be considered entertainment. If any items are given to employees they will generally be considered compensation, Forbes Magazine warns.
Day traders and other taxpayers should be careful to track the values and timing of gifts, and may wish to consider the accounting, compliance and tax implications of business decisions to give them beforehand.