The Tax Implications of Giving Gifts
As we approach the holidays, it is important to understand how giving gifts to your clients and your employees will impact your business’s finances. Business gifts are a tax-deductible expense but special rules do apply. The IRS states, “You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year.” You can spend as much as you want on a client or employee gift, but you can only claim up to $25 per person per year on your taxes.
There are a few different scenarios that we will discuss in this blog post. If you have questions regarding a specific scenario for your business, please contact your Account Manager.
Gifts to your Clients
As far as gifts are concerned, you can only claim up to $25 per person per year on your taxes. If you give Client A and Client B both Christmas gifts valued at $25, but you already gave Client A a birthday gift valued at $25 earlier this year, you will be able to deduct $50 of the $75 you spent on gifts this year. As your bookkeeper, we will capture the total client gifts purchased. However, we will also create two expense categories under Client Gifts to reflect the deductible and non-deductible gift categories.
Monetary Gifts to your Employees
Have you ever given a monetary gift to your employees? These gifts will need to be reported on your employee’s W-2s and all typical payroll taxes will apply.
Gift Cards to Clients or Employees
If you give a gift card to a client, up to $25 of that gift is tax deductible (however you can deduct no more than $25 per person per year). If you give a gift card to an employee, it is the same as a monetary gift and should be reported on your employee’s W-2.
Special Conditions
If your gifts are branded marketing collateral, they actually are considered “Advertising & Marketing”, and the $25 limit does not apply. The collateral must cost less than $4, have your company name/logo on it, and has to be one of the many identical items that you give on a regular basis.
If a gift could be either a gift or entertainment, it will most likely be considered entertainment, which is non-deductible.
What kind of information does your bookkeeper need from you regarding gifts?
You can help your Account Manager by keeping detailed notes (like what you bought, who you bought it for, and why you bought it) about the gifts that you purchase for your clients. For example, if you purchase 10 candles for your clients from one vendor, we will see the total amount of the purchase, but we will want to create a breakdown in your QuickBooks Online account so that you get the most deductions available to you. In the event your CPA requests a detailed list, we will have the documentation available for you.
Business by the Book can manage your bookkeeping and accounting for you. You can learn more at our website.
The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.
