5 Things You Need to Know About Corporate Gifting

‘Tis the season, not only for giving gifts to our personal friends and family but for business owners, it’s also a time for giving corporate gifts to our clients, as well as our vendors and/or business partners. If you were planning on deducting those gifts from your 2020 business taxes, it’s important to remember that the IRS has very specific rules governing corporate gifting.

Tax Deduction Limits

The IRS only lets you deduct up to $25 off the cost of business gifts given to each person. You can still spend more than $25 on each client, vendor, and/or business partner, but you can only deduct $25 of each gift from your taxes.

You also need to keep in mind that, if you’re married, the IRS treats you as one person, so if you and your spouse both give gifts to the same person, you can only deduct a total of $25 from all gifts given to that person

Tax Exclusions

If your clients are spread out over the country (or the world), you’ll probably have to ship at least some of your gifts, especially given the current restrictions around this pandemic. While it might be tempting to deduct the cost of packing, shipping, and/or printing your corporate gifts, those things are not tax-deductible unless they add significant value to the gift.

Inexpensive Branded Items Used Year-Round Not Subjected to Limits

If you regularly (not just during the holiday season) distribute promotional items, such as pens, magnets, notebooks, etc. with your logo permanently printed on them, and each item costs $4.00 or less, the $25 per person limit does not apply.

Entertainment

One of the biggest changes made to the tax law a few years ago was that the cost of entertaining clients and business partners (treating them to meals, sports games, etc.) is no longer considered a tax-deductible expense. Since most corporate gifts can be deemed entertainment, they cannot be deducted as a business expense.

Record, Record, Record

The key to any successful bookkeeping system is to keep records of everything. When it comes to corporate gifting, that means keeping records of, not only the cost of the gift, but also its business purpose, including which client/vendor/business partner to which it was given.

Conclusion 

Even some of the aspects of bookkeeping that might seem more straightforward, like corporate gifting, can sometimes be more complicated than you might think, which is why it’s important to get a knowledgeable bookkeeper to handle your business books and tax prep for you. We keep track of updates and changes to tax laws so you can focus on the aspects of your business at which you excel without having to worry about the IRS coming after you for tax fraud.

If you’re ready to achieve financial peace of mind in your business without the extra work of reading through pages and pages of tax laws, reach out now to see how The Bookkeeping Doctor can help make sure your books stay healthy.