Ensure you get credit for business gifts in the 2014 tax season

Earlier this year we posted an article to shed some light on the somewhat confusing business deductions that included entertainment, gifts, and meal expenses. Hopefully, you have reviewed your company policy with your tax accountant by now and are gathering the necessary records together for filing. With the deadline for filing 2014 taxes fast approaching, we wanted to further review business tax deductions for gifts.

Claiming Business Tax Deductions for GiftsTax deductions for gifts given to individuals

With gift giving season recently passed, you may be wondering if you can deduct any of those expenses come tax time. The total amount your company is allowed to deduct for gifts is $25 per recipient per year. However, IRS regulations state that the following business tax deductions are not considered gifts and are therefore excluded from the limit:

  • Advertising related items, costing $4 or less such as a branded coffee mug with your company’s name and logo printed on it
  • Identical items you distribute widely, such as pens or desk sets
  • Incidental Costs – engraving on jewelry, packaging, or mailing

What if you were to give a holiday gift basket to a client and they bring it home for their family to enjoy? That falls under the $25 per individual rule mentioned above, regardless if it is a direct or indirect gift, meaning it was given to the individual or to the client’s company to give to them on your behalf. For more information on business tax deductions, including if you and your spouse both give business gifts, check out the IRS Publication 463 (2014) on Travel, Entertainment, Gift, and Car Expenses.

Business tax deductions for gifts given to employees

Gifts – also called fringe benefits – given to employees fall under de minimis, which is Latin for “minimal.” These “perks” often make a work environment escalate from good to great, and can have a big impact on employee retention, but it is useful to know what they mean when it comes to deductions. The IRS defines a de minimis benefit as:

“any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.”

Examples of de minimis business tax deductions include:

  • Holiday gifts
  • Occasional parties
  • Occasional tickets for theater or sporting events

The de minimis business gift must be considered to have little value and it cannot be a form of cash. These are sometimes referred to as fringe benefits. Be sure to include frequency in your calculations to determine if gifts fall under this category, and read more on employee benefit tax deductions in IRS Publication 15-B – Fringe Benefits.

Proof of expenses for business tax deductions

Any claim of business tax deductions for gifts must be backed by support. To do this, detail transaction descriptions and clearly state the purpose of the expense in your accounting application, such as QuickBooks. Keep “evidence,” of these business expenses on hand in case the IRS requests to review them showing the amount, date, place, and character of the expense. Typically receipts or cancelled checks provide this evidence but review the IRS recordkeeping website to ensure your recordkeeping policies are in compliance with IRS requirements.

As always, for each tax-filing season, questions on what your business can claim for deductions should be addressed. Make certain you are aware of any changes to IRS rules and ensure you get the optimal business tax deductions in 2014 by carefully reviewing company policies and records with your CPA.