As a small business owner, you may give gifts to clients and customers to show your appreciation. Unfortunately, however the deduction for business gifts is limited to a paltry $25 per recipient per year.
Learn all the tax angles. Then, by planning ahead, you can get the most bang for your bucks.
Here are four ways to maximize the tax benefits.
- Give gifts to a business entity. The $25 limit only applies to gits made, either directly or indirectly, to a person. It doesn’t apply to gifts made to a corporate entity for the use of its employees.
- Reward a married couple. If you have a business relationship with both spouses, you can double up on the gift. In this case, the allowable limit is $50.
- Don’t sweat the small stuff. Normally, strictly incidental costs don’t figure into the $25 limit. For example, the costs of custom engraving jewelry or packing, shipping or insuring a gift are deductible without taking the $25 limit into account.
- Be generous to employees. Although gifts to employees may be limited by certain other rules, an employer is generally allowed to deduct the full cost of gifts made to its employees. Note: Such gifts may be treated as taxable compensation to employees.
In the past, a business may have been able to boost deductions by treating certain business gifts, such as tickets to an event, as deductible entertainment expenses rather than business gifts (subject to the 50% deduction limit for business entertainment expenses). But the Tax Cuts and Jobs Act (TCJA) eliminated deductions for most business entertainment expenses, beginning in 2018.
This isn’t a big-ticket item, but it adds up at the end of the year.
Small Business Tax Strategies