Entrepreneurs who give business gifts are not unusual, although they are decreasing in numbers, according to a recent survey undertaken by American Express. Yet many entrepreneurs still find the costs of a business gift far outweigh the hassle and effects on their bottom line. But what will the IRS let you expense as a business gift?
This article assumes that all business gifts discussed within are provided outside of an employee’s regular income. Which in plain English means: a business gift given to a staff member is considered a taxable benefit to the employee, and therefore cannot be expensed otherwise. With this in mind, here are the basic business gift expenditures currently allowable by the IRS.
Up to $25 of a Business Gift Can Be Written Off as an Expense
Therefore, if your business gift is valued at $50, only $25 can be written off as an expense. As well, you can only give $25 per person or organization per fiscal year, no matter what the occasion and who is doing the giving. So in the case of a family-owned business or one with more than one proprietor, only one business gift to a maximum of $25 can be written off each year.
Incidental Costs Are Not Included in the $25 Expense Limit
What this means to an entrepreneur is that if you accrue extra costs with relation to giving the gift (i.e. shipping, handling, personalization), these extra incidentals can be added to the write-off amount. However, if the item is considered to add value to the business gift (i.e. a valuable container that the gift is given in), the costs are not considered to be incidental and cannot be written down as a valid expense.
Promotional Materials Are Not Considered Business Gifts
So if the business gift in question is valued at less than $4 and has your business name clearly marked on it as a promotional item (such as a pen, calendar, mug or mouse pad), these items can be written off as a business expense, but not as a business gift. As well, any other promotional materials that are intended to be used at the recipient’s place of business, like a poster or display rack, are also not considered a business gift.
Entertainment Gifts Are Not The Same As Business Gifts
If you choose to give an entertainment gift to a business and you attend with the recipient, such as tickets to a show, you are required to write off this business expense as an entertainment gift and not as a business gift. If however you do not attend the entertainment event with the recipient, you can choose whether or not to write off this expense as a business gift or as an entertainment gift.