BUSINESS GIFTS August 2009
To Our Business Clients and Friends:
Most taxpayers are vaguely aware of the tax rule that limits the deduction for business gifts to $25 per person per year—a limitation that hasn’t been raised in decades. What isn’t as widely known is that there are a few exceptions to this rather restrictive limit. When one of these exceptions applies, you typically have no limit (or at least, a much higher limit) on the deduction for business gifts.
Here’s a quick rundown of the major exceptions to the $25 limit.
- Gifts to a Business Entity versus an Individual. The $25 limit only applies to gifts directly or indirectly given to an individual. Thus, gifts given to a company for use in the business aren’t subject to the limit.
- Gifts to a Husband and Wife. If you have a business connection with both spouses and the gift is for both of them, the $25 limit doubles to $50.
- Only Direct Costs Are Limited. The incidental costs of making a gift aren’t subject to the limit. Thus, the costs of custom engraving on jewelry, and the costs of packing, insuring, and mailing a gift are deductible over and above the $25 limit for the gift itself.
- Gifts to Employees. Although they have their own limitations and may be treated as compensation to the employees, an employer is allowed to deduct the costs of gifts made to employees.
- Gifts versus Entertainment Expenses. Entertainment expenses are normally only 50% deductible and gifts, of course, are typically 100% deductible, but only up to the first $25 of cost per done per year. In some situations related to gifts of tickets to sporting and other events, a taxpayer has a choice whether to claim the deduction as a gift or as entertainment. The gift deduction is a better deal for lower priced tickets, but once the combined price of the gifted tickets exceeds $50, claiming them as entertainment expense is more beneficial.
As you can see, there are several exceptions to the $25 rule. Thus, many businesses will be able to meet at least one of them. To the extent your business qualifies for any of them, it’s important that the qualifying expenses be tracked separately (typically by charging them to a separate account in your accounting records) so that a full deduction can be claimed.
If you have any questions regarding the types of gifts or gift-giving situations that may qualify for a full deduction or how to properly isolate and account for them in your records, please call so we can help you get to the right answers.
Best regards,
Brian Berlage
|
Past newsletters :
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
Subscribe to the newsletter :
|
