The IRS really needs to catch up with how kind you all are.
Wayyyyyy back in 1962, the IRS put a rule in place that businesses (like you) aren't allowed to send client gifts over $25. We've come a long way since 1962, and this rule is a bit unrealistic in some gift-giving situations.
It's important to show your clients how much they mean to you, but it's also important to make sure you are staying in compliance and keeping your business out of trouble - so you can continue to serve said clients.
Maybe it's part of your onboarding process or maybe you're gearing up to send gifts for the holidays. Either way, you need to know the rules (& some ways to work with them).
For the purpose of this rule, gifts are considered: cash, gift cards, or physical items.
Okay, here are the exceptions. Read carefully and find ways to gift your clients in compliance.
Gifting a business
The IRS rule states gifts are limited to $25 per person per year. This means that if you are gifting a client that is a business, you can send a gift up to the value of $25 for each person that works for that company. If your business client has 10 employees, that means you can send a gift of up to $250.
Gifts to a married couple
Similar to the above - since there are two people, you can gift a married couple a gift of up to $50.
Postage+Packaging+Shipping
The rule does NOT apply to postage, packaging, shipping, and any other incidental costs of sending the gift. This also includes custom engraving, gift wrapping, or any other additions to the gift that do not increase the item's value.
Branded SWAG
Side note: did you know SWAG stands for Stuff We All Get?! When I learned this fact I shared it with literally everyone I knew.
Moving on - branded marketing materials that you gift clients do not fall in the $25 gift rule. Anything that has your company name or logo printed on it and is one of many identical items that you give away regularly are not considered gifts, they are marketing/advertising expenses.
PRO TIP: Keep a record of the gifts that you give. For example, if you are sending Thanksgiving turkeys to your clients (yes, I know a business that does this. it's wonderful. I recommend.) at $25 a piece and you buy them all at one time, you'll want to document that this purchase was for multiple clients. If the receipt itself isn't itemized (showing multiple turkeys), attach the receipt to the documentation of how many you purchased and at what cost. It's also a good idea to note the name of the clients for whom the turkeys were purchased.
Also - when we talk about "you can" and "you can't" do this - what that really means is, you can deduct or you can't deduct certain things. So if you choose to send one person a gift valued at $100, you can deduct $25 of that gift, and the remaining $75 is non-deductible.
Be sure to take all of this into consideration as you're planning to spoil your clients. Spend the extra money you would have spent on gifts making your services invaluable to them and creating a wonderful client experience.
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