January 5, 2015
A corporation can deduct the cost of business gifts. However, total business gifts made (directly or indirectly) during a tax year to any one individual are limited to $25—anything above this amount is nondeductible. The deductible portion of gift expenses is reported the same as travel and entertainment.
A gift to a business entity that is intended for the eventual personal use or benefit of an employee or owner of the entity is considered a gift to an individual (and thus nondeductible to the extent it exceeds $25). In one case, the Tax Court limited to $25 each the taxpayer's claimed deductions of $210 each for 36 gift certificates. According to the Tax Court, the taxpayer failed to establish that the gift certificates were given to undesignated and unknown members of a large group in the sole discretion of the receiving entity.
Recognizing the Exceptions to Gift Treatment
A gift to a corporation or other business entity for use in its business (e.g., a technical manual) is not considered a gift to an individual and thus is not subject to the $25 limitation. In addition, the following items are not considered gifts subject to the $25 limit:
- An item costing the corporation $4 or less on which the corporate name is clearly imprinted, and that is one of a number of identical such items given away.
- A sign, display rack, or other promotional item to be used on the recipient's business premises.
- An item of tangible personal property given as part of an award plan or program to an employee for length of service or safety achievement if it does not cost more than $400 (or $1,600 in the case of a qualified plan award). A qualified plan award is one based on length of service or safety achievement that is part of a nondiscriminatory written plan.
The treatment of gifts can be changed in an amended return any time within the three-year statute of limitations.
Please contact us at 804.270.6980 if you have any questions or would like to discuss this or other tax reporting matters.