What Your Bookkeeper Wants You to Know About Business Gifts
Business gifts may seem like a small gesture, but they can have a big impact. Recognizing current and prospective clients with a small gift can go a long way toward supporting your company’s bottom line, especially for small business owners and “solo-preneurs” that are looking to grow their client base and develop lasting business relationships. Some employers opt to deliver client gifts just at the holidays, while others do so after a big sale or the completion of a project. Whenever the gift is given, however, there is some red tape that all business owners should keep in mind.
Business Gift Tax Deduction
Business gifts are also attractive because of the business gifts deduction. The IRS allows a portion of the gift to be deducted from the company’s taxes that calendar year, but there are a number of eligibility requirements, including:
• Companies can only deduct up to $25 per gift, per person each calendar year.
• Additional costs like engraving, packing or shipping aren’t included in the $25 limit.
Are Meals An Eligible Business Expense?
When a gift can be considered entertainment, businesses can potentially net an even higher return. For example, taking a client out to dinner would be considered a business meal expense, and the rules have changed here recently. The federal COVID relief bill that passed in late 2020 includes new IRS rules that will allow business owners to deduct 100% of meals with clients that they have at restaurants during 2021 and 2022. The previous allowed deduction was 50%, so this could encourage business owners to support struggling restaurants by dining out more frequently. As always, consult with your CPA before making any tax-related decisions.
Accurate Records are Key
The business gifts deduction can be a useful tool for driving your company’s mission without breaking the bank, but businesses have to be smart about bookkeeping. Any expenses a company may consider using as part of this tax deduction need to be documented—so save any and all receipts related to the gift. The IRS requires you to have records that prove the business purpose of the gift as well as the details of the amount spent, so it’s crucial to track all the details. Write on the receipt who the gift was for, what it was, when the transaction happened.
A professional bookkeeper will help you maintain your financial records so that you’re ready to go at tax time. The more details that you record, the better prepared your accountant will be when it comes time to include a business gift deduction as part of your taxes.
Paisley Solutions offers business owners and non-profit organizations access to professional bookkeeping services, including account reconciliation, financial reporting, and more. Contact us today for a for a free consultation!