Tis the season for goodwill, but in a business setting, you better know the tax rules, too.
NFBI:
As a business owner, you do a lot of entertaining throughout the year. But when the holidays roll around, this aspect of doing business has much more significance.
Not only is celebrating the season with your employees and clients a nice way to share the holiday spirit, the goodwill also can boost worker morale and reinforce business relationships.
There is, however, a potential Scrooge lurking in the background: the Internal Revenue Service. While business gifts could, in many cases, provide a company some tax savings, the gift and its circumstances must meet IRS muster.
Business gifts to clients and customers - Generally, business gifts can be deducted against taxable income. But the IRS sets a limit, $25 to be exact. There is no limit on the number of gifts you can give, only the value.
If, for example, you gave a client a $20 gift basket in July to mark the one year anniversary of doing business together, then another $20 gift for the holidays, you can only deduct $25 instead of the total $40. You can, however, give 100 clients each a $25 gift and deduct the full $2,500 against your business income.
There also are a few gift-giving exceptions. The $25 limit for biz gifts doesn’t include incidental costs such as packaging, insurance and mailing, even the fee to engrave jewelry. The IRS says a cost is incidental as long as it doesn’t add substantial value to the gift.
Some smaller gifts also are not covered by the $25 limit. They include items that cost $4 or less and 1) have your company’s name clearly and permanently imprinted on the gift, and 2) are one of a number of identical items that you distribute widely. Examples of these types of gifts are pens, magnets and other such items that are primarily promotional in nature.
Also read: Employee gifts
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