Tis' the season to send your clients holiday gifts! Sending your clients a holiday gift is a great way to thank them for being a loyal customer, or to remind them that you’re still here, ready to serve their every need. But a great question to ask, with this and every expense, is how much of that expense can I deduct for tax purposes? Here’s your answer:
The Limit on Holiday Gifts
You can deduct up to $25 of the cost of your gift per person, per tax year. Incidental costs, such as shipping, packing or engraving don’t count towards the $25 limit as long as they don’t add substantial value to the gift.
You also don’t have to count gifts less than $4 that have your business name on them and that you regularly hand out toward the $25 limit. For example, if you frequently give out branded pens, notebooks, or drink ware that’s less than $4 each you do not have to count that towards the $25 limit.
Entertainment as a Gift
If you like to take your customers out, for instance to a sporting event, that is considered entertainment, not a gift and is therefore not deductible.
Records
Everyone knows the IRS wants you to keep proof of everything. Make sure you keep records proving the business purpose of the holiday gift and the amount spent. Keep it detailed. In an audit, the IRS can look for any reason to disallow a deduction so make sure you can back up EVERYTHING.
Here’s to a joyous holiday season and the opportunity to love your clients well.
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