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Holiday Gifts Tax Deductible For Businesses

During the holiday season, it's pretty common to see businesses give their employees a gift as a way of saying thank you for all that you do. The bonus here is that in return, the IRS will deduct the cost of these gifts from taxes. Before you go shop crazy, though, it's wise to look into the limits of this business gifts tax deductable. There are certain limits to what you can and can't deduct.

Holiday Gifts Tax Deductible for Businesses

In this article, we're going to take a look at how the system works in order to figure out what you can and can't do when it comes to holiday gift price deductions. Let's get started by taking a look at the general rules.

The General Rules

The IRS will allow your business to deduct up to $25 for business gifts that you give to one person per year. There's no limit opn how many people you can get gifts for, just as long as the total per person is $25. That means that if you give someone a $50 present, you can only expect a $25 deduction.

If you end up giving a customer two gifts--one of $15 and one of $10, you can still claim that overall deduction of $25. You should note, though, that the $25 does not include incedental costs, such as gift wrapping, mailing costs, and the like. A thing is considered to be an incedental cost if it doesn't add anything substantial to the overall gift.

Special Circumstances

The tricky thing is that if you and your spouse were to give a business gift to the same person, for tax purposes, you're treated to be one person. This is the case, by the way, even if you and your spouse have different business connections with the person receiving the gift.

If you were to give a gift to a member of a customer's family, the gift in general is considered to be an indirect gift given to the customer. This rule doesn't apply if it can be proven that you have a legitimately separate business connection with the person who's receiving the gift, unless the gift is intended to eventually benefit the customer.

Pens and Frisbees

Many businesses will give out small collectibles as a kind gesture at events or tradeshows. As long as each individual gift is $4 or less and have your company name imprinted on them, these can be deducted without any limits on them.

Gift or entertainment expense?

What exactly happens when you give a customer tickets to a theater or sporting event? Well, if you go with them to this event, then it should be treated as an entertainment expense, which would make it subject to entertainment expense rules. In this case, the $25 limit doesn't apply.

However, as an entertainment expense, you can deduct up to 50 percent of the overall cost.

If you give the tickets but don't make it to the event, you can either declare the tickets a gift, which would make it/them subject to the $25 and under rule, or as an entertainment expense. This should be done at your discretion depending on which benefits you the most.

As an example, let's say you gift a customer with $150 tickets to a sporting event. If you were to claim this as an entertainment expense, you could deduct $75, which is 50 percent of the total. If instead you were to claim this as a gift deduction, you'd only be deducting $25 from the total.

Good records: the key to claiming deductions.

At the end of the day, it's important to keep good records as to business expenses, as these are monitored quite closely by the IRS. You want to note the date, time, name, and every other important piece of information about the gift and its receipt.

While this list isn't exhaustive, it should give you a good idea as to how the IRS operates when it comes to holiday gift tax deductions for businesses. It's best for you to keep accurate records of everything related to business gifts tax deductable so that you can keep yourself secure with the IRS.

Mary King
Attorney Mary King

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