Give and Get: What Kinds of Gifts are Tax Deductible?

In Business, Taxes on June 14, 2011 by Sufen Wang Tagged: , , , ,


Father’s Day is almost upon us, and you’ve probably already gotten something special for your dad (if you haven’t, you still have a few days left to be a good son or daughter). As you contemplate your gift, you may wonder: “Is this Father’s Day gift tax deductible?”

Unfortunately, the IRS doesn’t always reward us for being so generous. But there are certain circumstances in which you can claim the giving of a gift as a tax deduction.

If you give gifts to clients or business associates as part of your business, you can deduct up to $25 per person for the gifts you give every year. This includes gifts that are given to a company that are intended for the eventual personal use of individuals in that company, such as boxes of candy or cookies.

Gifts given to a customer’s family member must be considered an indirect gift to the customer unless you have a bona fide, independent connection with that family member.

Incidental costs of your gift-giving, such as wrapping paper, don’t generally count towards your $25 limit unless the cost of the incidental is significant compared to the value of the gift itself. For example, if you buy a basket for giving fruit to a customer, the basket would count because it’s worth a lot compared to the value of the fruit.

fruit basket

The Basket Case.

There are exceptions to this rule, however. You can’t claim promotional gifts on your taxes if they have your name clearly and permanently imprinted on them, or if they are items for wide distribution, like the kind of swag (souvenirs, wearables, and gifts) that you might give out at an industry convention.

If you give a customer tickets to an event that you do not also attend, you can decide whether you’d prefer to claim it as a gift or as an entertainment expense, whichever you prefer.

It’s nice to know that you could be rewarded for your generosity to your customers, clients, or business contacts. Truly, ’tis better to give than to receive.

On the Money,
Sufen Wang
Wang Solutions

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