Sending gifts to your customers is a smart move for several reasons: it reinforces your relationship, it can be used as a marketing tool, and it can get you a tax deduction. That said, don’t just give, ‘deduct’ the cost, and be done with it; here’s the rules to keep in mind this holiday season.
According to the IRS, a business gift is a gift given in the course of your trade or business, and your deduction is limited to $25 per person per year. That ‘one per year’ includes a gift to the customer’s family member, unless there’s an independent business connection to that family member; for example, if a father and son buy from your company, you can count them as two separate recipients.
Important note: packing, shipping, and gift wrapping, don’t count toward this limit. In addition, gifts that cost $4 or less don’t count toward the $25 limit if it’s one of many identical promotional items with your company logo imprinted (like coffee mugs, calendars, T-shirts).
So how do you claim your business gift deduction? There’s no specific spot on tax forms for gift expenses, but if you’re a sole proprietor and report your business expenses on Schedule C, you can include your business gift deduction on line 27a: “other expenses.” In Part V, you’ll then write “business gifts” on the appropriate line and list the amount you’re deducting for all your business gifts. Similarly, corporations and partnerships include business gift expenses in the “other deductions” section of their tax return forms.
Need more information on how to do the business gift deduction right? Give us a call; we’re here for you.