Want to show your appreciation to employees or customers by
giving them a gift? You may want to do it in such a way that your
business can deduct the cost of the gift for income tax
purposes.
The first rule relates to gifts made to employees.
Want to show your appreciation to employees or customers by giving them a gift? You may want to do it in such a way that your business can deduct the cost of the gift for income tax purposes.
The first rule relates to gifts made to employees. Companies that choose to give a cash gift can deduct the entire amount, but the gift is treated as a bonus and must be included as compensation subject to payroll taxes. This seems to detract from the notion of a gift. Gifts other than money must be included in compensation unless the item is relatively inexpensive, such as a holiday turkey. (The cost of such nominal gifts is still deductible as a business expense.)
The second category relates to gifts made to customers. To preclude abuse, Congress limited these gifts to $25 per individual customer per year. This limit was established in the early 1960s. A business concerned with its image might have difficulty finding gifts in this price range today.
However, gifts to business entities not for the personal use of an easily identifiable person are not held to the $25. Since the rules in this area can be complicated, no gift more than $25 should be made without first checking the tax treatment.
The rules create a few other exceptions. Promotional items costing $4 or less that clearly show the taxpayer’s name are not included as part of the $25 limit. Packaging, engraving and mailing costs are also excluded from the limit. And if the expenditure does not qualify for deductibility as a gift, it may qualify as an entertainment expense.
Doug Herring is a manager at the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
