Navigating the Rules Around Business Gifting: A Guide

A Guide to Business Gifts

If you’re in a business similar to mine where you have long-lasting client relationships or high ticket offers (courses, coaching, etc), you might want to think about gifting to your clients as appreciation for signing on with you, or as you close out an engagement. Of course, there’s always holiday gifting too. However, before you start shopping for presents to show your appreciation to clients, employees, or vendors, it's important to understand the IRS rules and requirements surrounding business gifting. In this blog post, we'll explore the dos and don'ts of business gifting and provide examples of what you can deduct and what you can't.

What is Considered a Business Gift?

A business gift refers to any item given to clients, employees, vendors, or business associates with the intention of promoting goodwill, strengthening relationships, or expressing gratitude. Common examples of business gifts include personalized merchandise, gift baskets, tickets to events, and even holiday hampers.

Deductible Business Gifts:

The IRS allows businesses to deduct certain expenses related to business gifts, subject to specific limitations. To be deductible, a business gift must meet the following criteria:

1. Ordinary and Necessary: The gift should be ordinary and customary in your industry and directly related to your business. For instance, sending a branded desk calendar to clients or providing branded t-shirts to employees would generally be considered ordinary and necessary.
2. $25 Limit: The IRS imposes a per-recipient limit of $25. This means you can deduct up to $25 per person per year for business gifts. If you and your spouse both give a gift to the same recipient, you can still only deduct a maximum of $25.

Non-Deductible Business Gifts:

While it's essential to express gratitude, not all business gifts are deductible. Before we get into non-deductible examples, one thing I like to remind my clients of, is just because something isn’t deductible, doesn’t mean you can’t buy it through your business. That’s where accurate bookkeeping comes into play, and categorizing things appropriately. If you know something isn't’ deductible, create a separate category in the chart of accounts, called “Entertainment” so your tax pro can easily pull those items out.

The following examples are generally considered non-deductible:

1. Entertainment Tickets: While tickets to sporting events or concerts might be appreciated by clients or employees, the IRS considers them entertainment expenses and limits the deduction for such tickets. Side note: entertainment is never deductible.
2. Cash or Cash Equivalents: Offering cash, gift cards, or cash equivalents like stocks or bonds is not deductible as a business gift. When it comes to offering gift cards or cash equivalents to employees, those must be added to their W2 at the end of the year.
3. Personal Gifts: Gifts that have a personal aspect, such as giving a client a designer handbag or an employee a luxury vacation package, are not considered deductible.
4. Excessive Gifts: If the gift's value exceeds $25, you can still deduct the first $25, but the remainder is non-deductible.

Record-Keeping:

To substantiate your business gift expenses and potential deductions, it is crucial to maintain accurate records. This is something your bookkeeper should be able to help you with. Keep track of the following information—this can be done in the in your accounting system to make it super easy for keeping everything in one place :

1. Recipient: Document the name, business relationship, and contact information of the gift recipient. Use the description line in your accounting system. For Example:
   1. Client Gift for Jane Doe, Private Coaching Client ([email protected])
2. Description: Record a detailed description of the gift, including its cost. On the description line of your accounting software, make sure you explain exactly what the gift was, and the individual cost for each client if you’re buying in bulk. For example:
   1. Linden Square Gift Box with journal, candle, pen, and chocolates - 4 x $99 each
3. Date: Note the date the gift was given or mailed. This should appear on your receipt and on the transaction date in your accounting software.
4. Business Purpose: Explain the business purpose or reason behind the gift. Do this in the description/memo line in your accounting software
5. KEEP THE RECEIPT! If you use something like Quickbooks or Xero, you can attach the receipt to the transaction!

Our Favorite Gift Vendors:

Business gifting is a thoughtful gesture that can foster stronger relationships and goodwill. Understanding the IRS rules and requirements is crucial to ensure you maximize deductibility while staying compliant. Remember, deductible business gifts must be ordinary, necessary, and within the $25 per-recipient limit. By keeping proper records and adhering to these guidelines, you can show your appreciation while managing your business's tax obligations effectively.

Here’s a list of our go-to gifting vendors. If you have some you really like, comment below to share!

Linden Square Co.

We send Linden Square customized and branded gift boxes to all of our new recurring clients and our VIP Group & Private Coaching Clients. These are a beautiful touch and the company will work with you to create something custom and memorable with your branding!

Greetabl

We like greetabl for small thank you gifts for podcast guests or small tokens of appreciation (like when a client refers us another client—we’ll send one of these in addition to a referral fee!)

Local Shops

Of Course if you’re good at curating your own gifts, shopping local is always a great option if you have the time!

Disclaimers:

This article is for informational purposes only and should not be construed as legal or tax advice. Please consult with a qualified tax professional for advice specific to your situation.

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