The holiday season is upon us, and the overachievers are already shopping for gifts. A holiday tradition for many businesses is to send gifts to valued clients or customers.
Now, if you’re a taxpayer, you’re probably thinking that client gifts make a great tax-deductible business expense. However, before you buy that expensive bottle of Dom Perignon, you should understand what amount is deductible per the tax code.
The deductible limit on business gifts is $25 a year to any one individual. Gifts made to family members of the client are also considered gifts to the client. In addition, you cannot exceed the limit by having your spouse make a gift to the same client—even if your spouse has a separate business relationship with the client.
A few incidental expenses that you can deduct beyond the $25 include the costs of engraving, wrapping, insuring and mailing the gifts. You are allowed to deduct the cost of promotional gift items, such as, pens, desk sets or calendars, on which your name is imprinted. However, that cost can be no more than $4 each.
So, if you buy a client a gift that costs $25, spend $10 to wrap and mail it, and then give the same client a $4 calendar with your company's name on it, you are eligible to deduct a total of $39, as a business expense on your tax return.
William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.