Since many businesses give gifts during the holiday season, we thought it would be appropriate to share the IRS rules around this practice.
A business can deduct the cost of business gifts. However, total business gifts made (directly or indirectly) during a tax year to any one individual are limited to $25 - anything above this amount is nondeductible.
$25 Limit - A gift to a business entity that is intended for the eventual personal use or benefit of an employee or owner of the entity is considered a gift to an individual (and thus nondeductible to the extent it exceeds $25).
Exceptions to Gift Treatment - A gift to a business for use in its business (e.g., a technical manual) is not considered a gift to an individual and thus is not subject to the $25 limitation. In addition, the following items are not considered gifts subject to the $25 limit:
- An item costing the business $4 or less on which the business name is clearly imprinted, and that is one of a number of identical such items given away.
- A sign, display rack, or other promotional item to be used on the recipient's business premises.
- An item of tangible personal property given as part of an award plan or program to an employee for length of service or safety achievement if it does not cost more than $400 (or $1,600 in the case of a qualified plan award). A qualified plan award is one based on length of service or safety achievement that is part of a nondiscriminatory written plan.
An item that could be considered either a gift or entertainment normally is considered entertainment. However, the business is allowed the option of treating some items as entertainment or gifts, whichever is more advantageous. An example is theater or sporting event tickets given to a customer who is not accompanied to the event by an employee of the gifting business.
Please contact us with any questions about this issue, and Happy Holidays!