Client gifts can be tax deductible, but there are limitations and specific rules that apply. The Internal Revenue Service (IRS) allows businesses to deduct certain business-related expenses, which may include client gifts, that meet certain criteria.
In the United States, businesses have the potential to deduct client gifts from their taxes, but it is important to understand the limitations and rules involved. The Internal Revenue Service (IRS) permits deductions for certain business-related expenses, including client gifts, but specific criteria must be met to qualify. To navigate this topic effectively, here are some essential points to keep in mind:
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Ordinary and Necessary:
The IRS requires that the gift be considered ordinary and necessary for your trade or business. This means that it should be a common practice in your industry and directly related to your business activities.
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$25 Limit per Recipient:
The IRS has set a limitation on the amount you can deduct for gifts to any individual recipient. The maximum deductible amount per recipient per year is $25. If the gift's cost exceeds $25, only the first $25 is deductible, and will not do much to offset the cost of a high-ticket item.
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Incidental Costs:
Incidental costs, such as packaging, engraving, or shipping, that are directly related to the gift can be included in the deduction.
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Documentation:
It's crucial to keep proper records and documentation of client gifts. This includes receipts, invoices, and records indicating the business purpose and the recipient of each gift.
NOTE: Promotional products that cost less than $4 per item and those with your company name and logo on them are not considered gifts.
Additionally, client gifts classified as entertainment, such as theater tickets or tickets to a sporting event, can be written off at 50% and are not held to the $25 limit.
It's important to note that the tax laws may change over time, so it's recommended to consult a tax professional like Peter Witts CPA PC for accurate and specific information regarding the deductibility of client gifts in the United States.
I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.