Are business gifts tax deductible?

Gift-giving is a common way to demonstrate appreciation, but did you know that business gifts are sometimes tax deductible? Familiarizing yourself with the tax regulations can help your business take full advantage of potential financial benefits. Read on to get ready for tax season.

A gift given "in the course of your trade or business," is considered a business gift by the IRS. Typically customer and employee “tangible” gifts qualify, as do indirect gifts intended for the recipient and their family.

Items like gift baskets with food and beverages are typically tax deductible. 

Like most business expenses, there are tax deduction limits. The maximum deductible amount is $25 per recipient per year. Of course, you can spend as much as you want on gifts for employees or clients, but only $25 can be deducted.

This limit applies to each gift recipient, not each gift itself. For example, if you gift to the same employee three times in a year, with a total cost of $100, you can only deduct $25. However, if you gift to three different employees, you can deduct $25 for each gift since it went to different recipients.

Promotional items, like swag, don’t qualify as business gifts, but they are considered marketing expenses. You may deduct them as such if they meet specific criteria:

• Under $4 per unit
• Imprinted with your business name
• Must be identical items

Entertainment items, like concert or sporting event tickets, aren’t deductible as business gifts, but they may be considered entertainment expenses.

Corporations may be able to deduct cash payments to registered organizations, but charitable donations can’t be deducted as a business gift.

While they might be convenient, cash and gift cards are never tax-deductible as business gifts. Only physical, tangible gifts can be applied to your deductions.

The $25 limit doesn’t include incidental costs, like packaging, branding, insurance, or shipping. These expenses are necessary, but they don’t add to the gift's intrinsic value, and therefore can’t be deducted as part of the business gift.

If you're planning to claim tax deductions for corporate gifts, keep detailed records and receipts. With Corporate Gift, you can easily download order records from your account. Start by tracking the following:

• Cost of the gift
• A description of the gift
• Purpose of the gift
• Recipient and their business relationship
• Date the gift was purchased

While this article is a helpful starting point, it shouldn’t be taken as legal, business, or tax advice. Additional nuances may be required based on your specific situation. Always verify with a CPA or the IRS directly. For more information, visit the IRS.