That gift-giving season is here again.
Giving gifts is one of the best parts of the holiday season. But, it can also be expensive. Whether you’re buying for friends and family or for business associates, there is a good chance you may be able to deduct some gifts as a legitimate business expense.
There are a few tricks that savvy business owners have been using for years to maximize their gift giving deductions.
But first… Who can you give gifts to?
The list includes current customers, prospects, employees, vendors, and suppliers. Depending on your business, this could also include friends or family members.
For example; if you are a real estate agent, aren’t your adult family members prospects? Of course, they are! So you might as well deduct the costs of their holiday gifts.
This strategy might not work if you sell specialty underwater demolition equipment unless someone in your family is a potential buyer. But for most people, this is a legitimate strategy you could take advantage of.
The $25.00 Limit and How to Skirt It
IRS only allows you to deduct $25.00 per person each year. To make it worse, married couples are considered one person!
According to the $25.00 rule, if you give a gift to a client that costs you $200, you can only deduct the first $25.00. However, there are two ways around the rule that allow you to deduct more expensive gifts.
1- Give the gift to an organization.
Rather than give a gift to the VP of marketing at XYZ company, give the gift to the entire marketing department. If you are not giving it to a specific individual, you can deduct the entire cost of the gift! (Note: if you are in an industry such as real estate or insurance that limit gifts, make sure you comply with all state and federal laws).
2- Give gifts of entertainment.
If you give a client a ticket for a show or to a sporting event, then you can write it off as entertainment rather than a gift. This allows you to deduct 50% of the cost. The deduction is limited to the face value of the ticket. Scalpers fees or mark-ups are not deductible.
Bottom line… You’ll be giving gifts anyway, so let’s make sure you deduct them! This leaves more money in your pocket which means you could buy yourself a gift. (Unfortunately, these wouldn’t be deductible).
Since you made it this far into the article… you must appreciate good tax strategies. Check out the link below to, “Learn the tax deductions that accountants often miss.”
Have you ever wondered if your accountant missed something on your tax return?
Jake Randall is the CEO and co-founder of Taxbot, a software company that helps independent contractors track their mileage and expenses to maximize tax deductions. He is a former investment banker with experience in mergers and acquisitions, and an investor in several other companies. He also has experience on the corporate side of network marketing.