Wondering if you can write off business-related gifts on your 2016 tax return?
Here's everything you need to know.
Say what you will about the commercialism of Valentine's Day, it's great for working folks! Our office was awash with chocolates, cookies, flowers, cards, and boxes of those chalk-textured conversation hearts. (#FunToRead #GrossToEat)
Of course, we sent our share of business valentines, as well. We love the people we work with, and we take every opportunity to show it.
But even in the middle of this love-fest, we had our tax glasses on. The 2016 tax countdown is underway, and we've got deductions on the brain.
Call us nerds, but we can enjoy valentines so much more when we know they are being properly deducted![Tweet “We can enjoy valentines so much more when we know they are being properly deducted! #TheBottomLine”]
With that in mind, it's time for a new edition of…
Can I Write It Off?
Can I write off gifts for clients/vendors/employees?
Here are some common instances of business gift-giving:
- You send a bouquet to your VA on Secretary's Day
- You celebrate your store opening anniversary by giving gift cards to other businesses on your street
- You host a promotional “open house” and give away t-shirts or stickers to the first 100 visitors
- You send gift baskets to longtime clients to thank them for their loyalty
- You send chocolate, food or wine to vendors as a token of appreciation
- You select an item from your own inventory to give as a last-minute birthday present for a friend (yikes!)
When it comes to deducting gifts, the big distinction is between gifts for employees and gifts for clients.[Tweet “When it comes to deducting gifts, the big distinction is between gifts for employees and gifts for clients.”]
Here's how we break it down:
Gifts to employees are considered to be directly part of their employment, which makes them technically compensation.
Those gifts should be reported as compensation in your books. Now, practically speaking, this isn't done very often, but this is what the IRS says. Consider yourself advised.
If you don't record the gift to an employee as compensation, record it under “employee incentives.”
If it's a personal gift–any item offered by you the owner to someone on your team for a reason that isn't business-related, but paid for out of your business account–it should be recorded as an “owner's draw.”
The general rule around gifts for clients is that they have a $25 tax deductible limit per client.
That means you can only deduct $25 of each single gift's value. This would apply to “welcome aboard” gifts, loyalty gifts, and anything to do with a holiday.
The exception to that rule is a gift that can be considered a “marketing expense.” For example, when Jess joined Jeff Walker's amazing Platinum Mastermind a couple years ago, she received a gorgeous basket of locally produced goodies from Jeff's hometown of Durango, Co.–great example of gift-as-marketing.
And as you'd expect, giving away t-shirts, stickers and other items with your logo on them definitely falls into the marketing category.
Marketing expenses aren't limited to the $25 deductibility cap.
You can share these kind of items as much as you want with clients and write them all off. (Obviously, though, it doesn't count as a marketing expense if you're giving them to employees.)
One trick that some businesses will do is put their company logo on all manner of items they offer to clients as gifts. For example, you give flowers but you put your logo on the vase–voilá, marketing!
It's a clever idea, but just don't get crazy with it. If you're slapping your company logo on a turkey and calling it a Thanksgiving promotion, you're on the fast track to becoming some IRS official's favorite new party story.
The Bottom Line
In our book, love means never having to pay more taxes than you should. So get wise to your write-off-ables. It's a great excuse to show your clients, vendors and employees how much they mean to you.