Tax Benefits: Giving Gifts as a Business

Gift packaging

It’s gifting season! Whether you’re giving gifts to a customer, vendor, or business owner, there’s not a more perfect time than the holidays to give to those who’ve helped your business this year.

There are many benefits to business gift-giving, such as showing appreciation, networking, supporting customers during milestones, and trying to win over a new business. From a tax perspective, one of the main benefits of gift-giving is the tax deduction.

Here’s everything you need to know, tax-wise, about giving gifts as a business this holiday season.

The Current Tax Reduction for Gifts

Currently, the IRS allows a $25 business gift deduction per gift per calendar year. If that number seems low, you’re not wrong. And, since the IRS hasn’t changed the limit since 1954, the odds of it changing anytime soon are slim to none. The good news is if you’re gifting to an entire business, not an individual, the $25 limit does not apply.

It’s important to note that there are certain rules for entertainment gifts such as tickets to a sports game. For entertainment gifts, you may choose whether to claim the deduction as a gift or as entertainment. However, your deductible will change based on what you choose. Entertainment expenses are usually 50% deductible.

Claiming Your Deduction

Tax forms do not have a specific place to outline your business gift expenses. If you’re a sole proprietor, corporation, or partnership, you will put your business gift expenses under “other expenses” on your tax form.  

Gift Tax

If you give someone money or property without receiving anything in return, you are probably subject to federal gift tax. However, there are some exceptions. 

The following are not subject to gift tax:

  • Gifts costing no more than the annual exclusion for the calendar year. Note: the annual exclusion for the 2018-2019 calendar year is $15,000.
  • Tuition and medical expenses for someone else
  • Gifts to your spouse
  • Gifts to a political organization that they’ll use
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Track Your Gifting

In order to get your tax deduction, you must keep certain documents and items in check.

Keep in mind:

  • The cost of the gift
  • Date the gift was purchased
  • Purpose of the gift
  • The business relationship between the person giving the gift and the receiver of the gift

Know the Risks

According to a Deloitte poll, over 18% of survey respondents said that their company had a no-gift policy. Why? Most likely to avoid breaking laws like the Foreign Corrupt Practices Act.

If your company isn’t global, this isn’t something you really need to consider. Still, it’s important that you’re aware of the parameters and the proper etiquette of gift-giving as a business. Your customers may have different rules, and the gifts you give to your customers probably differ from the gifts you give your colleagues. Just like buying a gift for your closest friend, it’s important to be thoughtful and intentional.

Getting Help to Prepare and File a Return

If your gift exceeds annual exclusions, it would be wise to get professional help when filing your return. Depending on the size and complexity of your gift transfer, an attorney or CPA can lead you through the process.   

Gift giving can be super rewarding for both parties involved. Showing your appreciation for those who have made an impact on your business is always a good idea. Still, it’s important that you’re aware of the tax implications and etiquette for gift-giving, no matter the season.

Does your business give gifts around the holidays? What have you found that works well? We’d love to hear from you. Drop us a line and let’s talk. We love knowing what the ScaleFactor community is up to. And as always, for everything else, check out the ScaleFactor blog.

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