Rewarding loyalty. Enhancing morale. Whatever your reason for giving business gifts, you're probably aware of the general rule limiting your deduction to $25 per recipient. But do you know what expenses are considered gifts? Here are three scenarios to test your knowledge.
Situation 1: You're so pleased with the advertising brochure a copywriter created for your business that you include an additional $200 with the invoice. Is the bonus a gift?
The rule: Gifts are given out of affection, respect, or similar impulses. In this case, you're paying a bonus for services. The copywriter has income. You have advertising expense.
Situation 2: You surprise an employee with $25 cash for going the extra mile on a project. Is the money a gift or compensation?
The rule: Cash payments to employees are not treated as gifts, no matter the amount. Cash isn't considered a de minimis nontaxable fringe benefit either. The $25 is compensation to your employee, wage expense for your business.
Situation 3: You give a loyal customer two concert tickets as a thank you. Is the cost entertainment or a gift?
The rule: Generally, expenses that could be either gift or entertainment are classified as entertainment, deductible at 50% of cost. However, there's an exception if you don't attend the concert with your customer. In that case, you can choose whichever classification generates the larger benefit.
Business gifts are also subject to other rules. For instance, you're required to keep records indicating the cost, date, business purpose of gifts, and your business relationship with the recipient.
Please call for more information. We'll be happy to help you sort out the business gift rules.
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E-Mail us at: finance@ClevelandSeniors.Com
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