Expense Deductions: Your Corporate Gift Guide

There are plenty of reasons your company would give a corporate gift: spreading seasonal cheer, thanking a valued client, or celebrating professional achievements. Organizations can certainly benefit—not only from fostering client or employee relationships—but also from IRS-defined deductions. As the holiday season approaches, here’s a regulation refresher when it comes to corporate gift-giving expenses.
The $25 Gift Limit. Your company can deduct up to $25 for each business gift per recipient per tax year. Colleagues, clients, and employees all fall under this $25 limit, whether the gift is direct or indirect. The difference? A gift intended for eventual personal use is considered an indirect gift, including gifts to clients or family members of employees, whereas those given as part of a direct professional relationship (i.e. a company to its employees) are considered direct.
Incidental Costs. Costs that are considered incidental are generally not included when determining the cost of a gift for purposes of the $25 limit. Incidental costs include items that do not add substantial value to the gift, such as: Jewelry engraving
Packaging, insuring, and mailing. Gift-wrapping supplies. To clarify “substantial value,” the IRS gives this zesty example: While gift-wrapping is an incidental cost, an ornamental basket to package fruit is not incidental if the value of the basket is substantial compared to the value of the fruit.
Exceptions. When it comes to gift-giving deduction rules, the IRS isn’t a total Grinch. Some items are not considered gifts for purposes of the $25 limit: if the item costs less than $4, has your name clearly and permanently imprinted, and is something you widely distribute. For example, you usually won’t need to include promotional items like pens, desk sets, stickers, stress balls, and bags within your $25 limit. Signs, display racks, or other promotional collateral that the recipient will use on business premises are also non-gifts.
Gifts vs. Entertainment. According to the IRS: when in doubt between the two, it’s usually entertainment. If you give tickets to an event and don’t accompany the recipient, you could classify the gesture as a gift expense or an entertainment expense—whichever option is most advantageous to your company. If you attend the event with the recipient, the tickets will be treated as an entertainment expense.

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