One of the best parts of the holiday season is giving thanks and gifts of appreciation to those who make our work worth it. As you consider gift options for your clients, teams, and colleagues, keep in mind the tax implications of your purchases. The IRS has published specific guidelines for gifts. Here's the basics:
You can deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during your tax year.
You need to have records that prove the business purpose of the gift as well as the details of the amount spent.
Incidental costs such as engraving, packing or shipping aren't included in the $25 limit if they don't add substantial value to the gift.
For purposes of the $25 per person limit, don't consider gifts costing $4.00 or less that have your business name permanently engraved on the item and which you distribute on a regular basis.
In the spirit of giving, here are some pointers for maximizing these deductions:
Maintain a gift log including the cost, recipient, and reason for gift
Gift to teams rather than single persons. The individual limit is $25 but you can increase your budget by offering gifts that a larger group can enjoy. Keep track of all recipients of each gift on your gift log.
Offer charitable contributions in the name of your desired recipients, ideally to a cause they care about. This will allow you to maximize giving and deductibility, while also fostering a truly warm feeling for all.
Throw a company party. If this is primarily for employees, you can deduct 100% of the cost. Bonus: team-building.
Remember that if you are a licensed cannabis business, your deductions are susceptible to IRS section 280E and thus a bit more complicated. We'd love to help you discover how this impacts you.
Sonder Bookkeeping is always here to help you navigate the complex environment of business taxes and bookkeeping. Reach out to us for support any time of year!
To see this at the source, check out the IRS Article on the subject.
