To help you close out 2005 on the best note, we
are sending out a four part series. Expect one
every other day until the end of the year.
Part Two
The holiday season is a time when businesses
like to give gifts to their customers and
suppliers. This is a good way to reinforce
valuable business relationships and establish
goodwill. How much you spend on a gift is a matter
of business judgment. But regardless of what you
spend, the IRS has its own rules on how much of
the value you can deduct.
The general rule is that you can’t deduct more
than $25 for a business gift to any one recipient
in any tax year. So if you give a valued customer
a $50 cheese basket at Christmas, you can deduct
only $25 as a business expense. If during the
course of the year you give that person several
gifts totaling $80, your deduction is still only
$25
There’s an exception for items such as pens or
desk accessories that you distribute widely as
promotional items. If the value is under $4 and
they’re imprinted with your name, they don’t count
towards the $25 limit.
What about holiday gifts to your own employees?
If you give food or other items of nominal value,
you can deduct the cost as a nonwage business
expense. But if the gifts are of higher value, or
you give them only to senior executives, you may
have to treat them as noncash bonus payments. In
that case, you would deduct the value as wage
expense, and the employees would be liable for
income and payroll taxes.
If you’re planning to give holiday gifts and
have questions about the tax treatment, please
contact our office.
