Are Gifts Tax Deductible? Long Distance Short is continuing on the quest to unwrap the mysteries behind staying connected through gifts. Natasha, Director of Digital Marketing at Gift Baskets Overseas, has managed to coax a special guest onto today’s episode: the founder, CEO, and Chief Gift Officer at GiftBasketsOverseas.com — Dmitry Peregudov — is here to answer one burning question of the business industry: “Are gifts taxable?” Stay tuned to hear what the man behind the leading international gift basket company has to say about gifts, taxes, and how your company can make the most of each and every gift you send.
Are Gifts Tax Deductible? Let’s Talk!
So I’m starting the recording now — hi, Dima! Thanks for joining us for this podcast episode.
Hello, Natasha. Thanks for having me!
What kind of gift expenses are tax deductible?
Today, we are going to talk about gifts and taxation. We often receive questions from customers regarding what kind of gift expenses can be tax-deductible. People ask about corporate gifts sent to employees, to business partners, to associates, to customers, — and even personal gifts, such as gifts to relatives. Could you please share what you have about that?
Sure! So, there are a lot of tax laws, and I’m mostly going to talk about the US tax law and the context of that; I’ve consulted with a number of accountants on the matter, and I’ve learned that it’s not so simple as to just consider any taxation to be universal across different gift types. So, the nature of the gift and the gift recipient actually matter here, so, if the gift is given to a client vs. one given to an employee, — those are two different situations. Also, the type of the gift itself, whether it’s a product sample, some swag that’s branded with a company logo, or just an unbranded gift — those types of gift would basically dictate the way the tax deductions would apply in the US tax law.
I could give you some examples, I guess, and maybe they will clarify that. So, in general, a single gift deduction that is given to a client is limited to $25 US dollars. And $25 is basically the amount you can deduct for a standard gift that you send to a person from your business that is registered in the US. That amount looks kind of funny today, because it came from way back — I think it was the ‘70s or ‘80s when that was decided, — and since then it wasn’t really changed. So, today, for $25, there’s not a lot you can do.
But it’s worth pointing out that it’s just the value of the gift that we’re talking about, so if there’s shipping involved, or packaging that costs extra, some special branding, a gift card and so on, — that’s separate from the value of the gift. And that can be deducted in addition to the gift value.
Say, for example, you are sending a bottle of wine that costs $25, and it costs about $20 to ship, and $5 to package; the total expense is $50, and if you’re sending it to a client, you should be able to deduct the whole $50, — because $25 is the maximum value you can deduct for wine, and then $20 will cover shipping, — that’s also a deduction, — and then $5 will go to packaging. So, the $50 will be fully deducted; yet, if the wine cost $50 and then plus some shipping, then you’d only still be able to deduct $25 for the wine, and whatever the shipping is, and the packaging. Does that make sense?
When can one write off gifts?
Yeah! Yes, it totally makes sense. Another question is about timing: when can one write off gifts as corporate expense? Is there any particular holiday you’re waiting for to do this, or can it be done year-round? If you have any information about this.
So, generally, the timing isn’t really restricted; it’s just during the tax year that those events take place. Many businesses in the US are organized on a cash basis, and file taxes accordingly, which means, when you realize the expense, this is when you actually get to write it off as an expense. Of course, the actual realization of that is a tax return, when it takes place, but as far as the timing, the date has no relation to a holiday of any kind — you can give any time, there’s really no restriction on that.
There are some situations when the gifts can potentially be part of a longer-term project, and if you’re not on a cash basis, then you may have to realize that expense, when it goes, together with the project expense that it’s part of. That’s a bit more tricky and I’m not going to get into that, it’s a quite complicated topic.
But it’s important to understand, again, that the type of gift and who the recipient is, — for example, if it’s an employee, that’s something I should’ve probably mentioned on your first question, — if it’s a gift to an employee, there is no $25 limit that applies. The limit’s actually $400 — for tangible gifts. So, for example, if you want to reward an employee with a nice tangible gift for a tangible accomplishment of some sort, or if it’s a service award situation, or an employee deserves — if it’s a service award or recognition, you, for example, can deduct up to $400 for a tangible gift — let’s say, a watch. Let’s say, a nice watch could be given to an employee, and up to $400 of its value can be deducted as a legitimate expense.
There is also a separate law around entertainment-type gifts: if you are sending someone a ticket to a baseball game, for example, a soccer game, a hockey game, they get that — and if the customer, a client who receives the gift gets to go to the game, that’s not really tax-deductible beyond $25. But, if you are part of that experience and you go to the game with them, let’s say you actually join the trip to the game and you actually entertain the client at the game, then those tickets for the game — for you and for your customers — are considered entertainment expenses, and they’re not limited by $25 per se, but they are part of a different way to deduct taxes: entertainment expenses have their own tax law associated with them, and that’s usually more flexible than the $25 limit. So you could find some wiggle room with that, applying those laws accordingly.
Uh-huh. So it’s $25 in general, but if it’s a gift to employees, it can be up to $400. But if it’s a gift to a business partner or an associate, the sum is much smaller than that. For a gift that’s not entertainment.
Yes, $400 limit for employees, $25 limit for clients; if you’re part of the experience, then it’s entertainment expense, and it’s not limited by any particular cap — it’s just that what you spend there has to be reasonable within the merit of the event, of course. But, generally speaking, yes, entertainment expenses are a separate thing, they have no capped limit.
The other thing that’s an exception from the $25 rule is the swag type of gifts. If you’re sending swag, you can actually send swag for a lot more money than $25; as long as each swag item is maximum $4, you can send multiples of that, and not be limited by the $25 limit per gift. Let’s say you have a swag set of a $4 hoodie — there’s no such hoodies for $4, but let’s just say it’s a $4 hoodie, a $3 shirt, a $2 pen, and maybe a $2 sample bag, a bunch of other things — each of those should not be more than $4, and you can combine them in a gift that costs much more than $25, and it will be fully deductible — as long as each item is under $4.
Uh-huh. So we can have an entire gift basket of swag items.
Potentially, it’s if you have swag — and samples are also a bit of a different situation. Like, if you are giving a product sample of something you sell, that’s not really necessarily a gift — it’s a product sample, and that $25 limit does not apply to this.
How to write off gift expenses as tax deduction?
I see. I see, thank you. Another question is quite practical: how to write off gift expense as tax deduction? Do you have any insight, some helpful tips?
Yeah, so, like most things that are described around categorizing information for that type of deduction — what that would be, would that be a standard client gift, limited by a $25 cap, or would that be an employee gift, or would that be entertainment expense that you’re planning for and attributing accordingly, — and you just basically have to keep a record of those types of things. Generally, if it’s a larger firm, accountants already know how to attribute those.
If you’re a smaller business or a medium business that doesn’t have internal accounting, or you’re working with an external accountant, make sure you categorize your expenses appropriately, either as a customer gift, or as entertainment expense, as an employee gift, and so on. And when you use QuickBooks or other tax accounting software, you record accordingly, and when your bookkeeper or accountant make sense of it, they need to understand what exactly it’s going to be, and how, when they file the taxes for your business, how they should be attributed for your tax deduction.
Are gifts tax deductible: International aspect
Thank you; thank you for sharing. I’m wondering also if the situation is any different across the globe; we received questions regarding gifts and taxes mostly about the United States, which was our primary concern in this episode, but also about Canada, Australia, the United Kingdom, New Zealand, South Africa — we have clients all over the world, and many of them are interested in this. Do you have any information about international laws applicable to gifts and taxes?
So, Canada is somewhat similar to those in the US, from what I’ve heard. There are, of course, some deviations from the US tax law, specifically with the amounts — I wouldn’t quote myself on that. So, I’m not going to go into the specifically Canadian jurisdiction for that, but it’s fairly similar.
The UK is a bit different; they have the IT tax there, often associated with any of the gifting expenses. The IT can be generally deducted, but there’s not really much of a tax relief in the UK when you’re making business gifts. By default, those gifts are attributed as entertainment, and you basically don’t have a deduction around entertainment expense the way you do in the US tax law.
But there are exceptions — things like advertising, similar to how it is in the US, like when we talked about swag. When you do advertising types of gifts, such as product samples, such as swag, whatever is carrying your brand, you would have a deduction, and generally there is a £15 amount that serves as the limit, and you can play around with those numbers and learn more about that. Again, the IT comes into play here, but I would prefer that, when someone researches the law in the UK, they actually do consult the actual accountant; I would not feel comfortable, actually, personally advising outside of the US.
How to use left-over budget for gifts
Totally makes sense. A little side-note here, that, in a blog post that will accompany this webinar or podcast episode, — your medium of choice, — we will have a block of useful resources where our content team worked hard to collect the links for the countries mentioned, to the official resources on taxation or corporate gifts expenses. So you can have the links, and then you can research for your particular country.
And the last question! One of the most interesting in our context, is: how can Gift Baskets Overseas actually help? Let’s consider a situation where a company has some budget for gifts that they want to have spent this year; however, they don’t have an occasion, the budget expires December 31st or any other date of the year, and they still want to have this expense filed this year — this tax year. How can this be done — with gifts, in our case?
Of course, that’s a great question and a popular one nowadays, where budgets do tend to shift, and sometimes they cut into the next year; especially in a more challenging economic climate, oftentimes the budgets are recurrent, and they’re not possible to shift over. We are there to help, — actually, we are asked about that by customers quite a bit towards the end of the year. And sometimes, there’s no immediate need to send a gift to their customer base, but they do have an event planned, let’s say, in February. And sometimes, they have no time to organize their list of recipients for November, let’s say, or December, — and yet, they still want to make sure they have a chance to use their budget.
So, what we do for customers like that, is we have a special way to offer a gift certificate or a store credit of the amount required. There are number of times where we would either sell a single gift certificate for just a couple of hundred dollars, and we also sold certificates for much larger sums — tens of thousands of dollars, — where a company, a business is looking to allocate that particular amount for a project next year — maybe early next year, middle of next year, — and we allow that by accepting that early deposit into their account balance, and we issue a store credit note, and then the customer is able to come back and organize a delivery whenever it is convenient for them.
It sounds fantastic! Any time restrictions on this? Like, how long do the customers have to spend this budget?
Generally, in our state where we are operating, in the state of Massachusetts, we have a law that requires that any business that issues a store credit to customers and accepts funds for that store credit — whether that’s a gift card, or a certificate, or anything, — must keep the amount in escrow, available for redemption, for seven years. So, with no exceptions, whoever you work with, in our state, we have to be respecting that law. And we, of course, do that, but generally, even beyond the seven years period, if somebody would want to use our store credit, we would never say no. In most cases, it never came to that, and most customers do use their store credit within a year or two, and that’s not an issue, but if you need to take seven years or more, be our guest — we have that option.
Are Gifts Tax Deductible: Wrap Up
Perfect. So, let’s wrap up: gifts can be tax-deductible; in different countries, the situation can differ, but in the United States, you generally have $25 per gift for it to be tax-deductible; different limits apply to swag gifts and gifts to employees; people can use corporate gifts throughout the year, and if they want to have a particular budget spent for this year, but actually use the gift credit next year or even beyond that, they can come to us for store credit.
We will have additional links for more information on the situation in different countries we mentioned in questions from our customers. We will also have links to the website and information on how to request store credit from our Corporate Gifting Team. Anything else you would like to add?
I think you’ve covered the summary well — that’s great, Natasha, thanks for summarizing everything. So, we are here to answer questions — if, for any particular situation, any customer has questions related to taxation around gifting, we are happy to help, happy to make it more clear, and when it comes to gifting across the border, we are also happy to provide resources available, and answer any questions that come up!
Sure! We will have all the links in the video description, in the podcast episode description, and in our blog. Thank you so much!
Gift Tax Credit Around the Globe
We collected some useful resources for your convenience, however, we strongly recommend that you made an inquiry with your local authorities when claiming tax credit for corporate or personal gifts.
Tax Deductible Gifts in the US
- UK Government Site: Money and Tax
- Tax on Goods Sent From Abroad
- Government of Canada: Gifts and Income Tax 2021
- Australian Government Taxation Office: Gifts and Donations
- Australian Government Taxation Office: 2022 Tax on Gifts or Donations
- SARS: Donations Tax
- SARS: Sending/Receiving Goods in the Post
Are Gifts Tax Deductible? Now that you know more, what’s next:
This has been another episode of “Long Distance Short” — your podcast for tips, tricks, and real-life stories of how to make the most of any long-distance relationship. If you want to learn more about a corporate gift campaign with GiftBasketsOverseas.com, you can email the team at [email protected] Call toll-free for the US and Canada at +1 888 673-2822, or request a call by going directly to the website: www.giftbasketsoverseas.com.
Director of Digital Marketing and Strategy for GiftBasketsOverseas passionate about all-things digital, travel, and wellness. Natasha covers some corporate topics and data analytics and research for the GiftBasketsOverseas blog.