As a small business owner, you want to maintain the best relationships while taking advantage of every possible deduction.
That’s why you want to learn more about gift write-offs! Luckily, the rules haven’t changed since they were established about 60 years ago.
Do you know what else was established that long ago? CSI Accounting & Payroll! For all of this time, we’ve been working with small business taxes and advising on deductions to minimize tax liability.
Our clients (and prospective clients) often ask us these questions about gift write-offs:
- Which people can I write off gifts to?
- What kinds of gifts can I write off? How much value can I write off?
- How do I categorize client gifts in my books and on my tax return?
People You Can Write Off Gifts To
We’ve been asked a lot of questions about which recipients you can write off gifts to. Customers, employees, and family members – which ones apply?
First of all, family members are the odd ones out because they may or may not be associated with your business. However, if they happen to be your clients or employees, the rules below will apply.
Good news: you can write off some gifts to your clients (and to your employees)! There’s also no precedence – you can pick and choose which ones to gift to without having to give gifts to everyone.
Value & Type of Gifts
Next, let’s talk about the value that you can write off and what kinds of gifts apply.
Write-off Value of Gifts
You are allowed to write off $25 per year per individual client. Any value that goes beyond that is not deductible, but that doesn’t stop most people from going over that limit and taking a loss (meaning no tax benefit) on the excess value.
There is no cap on how much you can gift, but if you gift $18,000 or more per individual per year, then you may be subject to gift tax.
Gifting to your employees allows you to write off $75 per year per individual, and the gift tax threshold is the same.
Types of Gifts
What kinds of gifts can you write off? As long as they stay in that $25 limit for clients (or $75 for employees), you can write off that value in:
- Physical gifts (gift baskets, food, liquor, you name it)
- Gift cards
- Cash
Otherwise, there’s one other thing to mention: branded items, or swag. If you gift things that have your name or logo on them, the deductible limit is only $4 per individual per year.
Categorizing Client Gifts in Your Books & Tax Return
As long as you’re following the rules mentioned above, you can show gifts in your books by creating a category for them. In the past, we’ve seen new clients come in with the following gift categories:
- Gifts
- Gift expenses
- Client expenses
- Office expenses
Then, you just write it off like a normal expense on your tax forms. You would do this the same way that you might show office supplies, insurance, or vehicle expenses.
Maximize Your Deductions With an Expert!
If you were our client, what would our monthly accountants generally advise? We think gifting to clients is a great way to maintain relationships, even if you gift over the deductible limit. You can’t buy customer loyalty, but kind gestures are usually worth it!
Now that you know about which people you can write off gifts to, what kinds of gifts and how much value you can write off, and how to categorize gifts in your books and tax return, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what it’s like to work with CSI by clicking the image below:
