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Beware of the Tax Grinch when Giving Gifts to Clients or Employees

gifts [1]With the holiday season right around the corner we thought it would be a good idea to remind everyone of the tax rules related to gift giving.  While gifts given customer or employees are a great way to generate good will, they can cause some unintended tax consequences.

For tax deduction purposes gifts are limited to $25 per person, per year.  You could certainly give gifts in excess of this amount, but the deduction for tax purposes would be limited.  This limit may seem quite low because it has been set at the same amount since 1954!

The $25 annual limit applies to gifts given to or intended for use by a specific person.  If your gift is intended for an entire company, this limit doesn’t apply because your gift is intended to be shared by multiple people.  For example, the cost of a $100 gift basket given to the CPA firm that provided you with great tax advice all year would be deductible since the gift would be shared by all employees of the firm.

Keep in mind that incidental costs related to packaging, insuring or shipping the gifts don’t count toward the annual limit.  Also, low value (under $4 per item) gifts that include company name or logos are typically deemed advertising material and not included in the $25 annual limit.

Please contact your ShindelRock accountant if you need any assistance with gift giving issues or consult the IRS’ guide on gift giving tax issues [2].