Category: Gifting

Posted on by Jan Roberg

What Business Gifts Can I Deduct on My Tax Return?

If your business is buying gifts for clients, remember that you can only deduct $25 per person that you buy a gift for.

If your business is buying gifts for clients, remember that you can only deduct $25 per person that you buy a gift for.

 

 

If you give a gift as a part of your business it’s a deductible business expense.     BUT! You can’t deduct more than $25 for gifts you give to a person during the tax year.    This $25 limit has been in place for ages and hasn’t been adjusted for inflation for as long as I’ve been doing taxes.  That makes keeping within the gift budget a little trickier every year.

 

I think some people do a lot of “fudging” on the gift expenses, but the IRS seems to be taking a closer look at everything these days so you need to know what you can and can’t deduct.  And make sure you document everything and keep those gift receipts.

 

Here’s some real questions that people have asked me about deducting gifts on their tax returns.

 

What if I give two different gifts, like a birthday and a Christmas gift?  Can I deduct $50 then?

No.  Sadly, the $25 limit is on gifts for the entire year, not $25 per gift.

 

What if I give a $100 gift to my client’s family of four?  Can I deduct the full expense?

No.  Any gift you give to the customer’s family is considered to be an indirect gift to the customer.   So unless you independently do business with each of the other family members, you may only deduct $25 for the gift.

 

My husband and I each own our own businesses and our businesses have some clients that overlap.  Can we each deduct $25 for gifts to our overlapping clients? (Okay, nobody asked me this one, I saw it online and thought it was a good question.)

Surprisingly, No.   Technically, a husband and wife are treated as one taxpayer and it doesn’t matter if you have separate businesses or separate employers.  Partnership partners are also treated as one taxpayer when it comes to gifts as well.

 

I sent one of those holiday gift tins that cost $24.95.  The extra Holiday message cost $1.95 and the shipping was $9.95 for a total of  $36.85.  Am I stuck only claiming the $25?

Actually, in your case, you can deduct the whole amount.  The gift itself was under $25.  You are allowed to deduct the incidental costs like shipping, wrapping or engraving on jewelry.

 

I gave my client two football tickets that cost $150 total.  Am I stuck only claiming $25?

Before the Taxpayer and Jobs Act, anything that could have been considered as entertainment could be deducted as an entertainment expense–even if you didn’t go with the client.  So prior to 2018, you could have deducted $75–half of the amount as an entertainment expense.  But now, after the Taxpayer and Jobs Act, you can’t deduct entertainment at all.  So no part of that gift would be considered to be deductible.

 

If bought my daughter an IPad for Christmas.  Since she sometimes does some work for me, can I write that off as a deductible business expense? (And yes, this was a real question.)

Since she does supposedly works for you,  you are issuing her a W2 for her wages right?  If you don’t issue a W2–then claiming she works for you probably isn’t going to pass muster with the IRS.

But let’s be realistic.  You’re either buying an IPad for the business, or you’re buying an IPad for your daughter.  If you’re wrapping it up and putting it under the tree as a present from Daddy – that’s a gift.  And it’s not a business gift.  If you really want to call it a business gift, fine, but you only get to deduct $25.

If she really works for you and she needs an IPad to do her job, you buy her an IPad for her job and it goes on your business asset list.  She might have some incidental personal use – that’s fine, but it’s a business asset not a gift.  

 

Remember, small incidental gifts valued at less than $4 with your logo on it don’t count as a “gift” towards that $25 total.  If you’ve been giving away mugs and pens for advertising, don’t worry–those are still  100% deductible.

 


Updated 7/20/2019

Posted on by Jan Roberg

Gifting Stock with Long Term Capital Gains—Helping Granny and Yourself

grandma b+w

Photo by Amanda Schutz on Flickr.com

I recently wrote about some of the basics of capital gains taxes.  Today I’m going to talk about one strategy that you might be able to use to reduce those taxes.

 

The old strategy to avoid paying long term capital gains tax was to gift appreciated stock to your children because they’d be in the 0% capital gains tax bracket.  But now—with the kiddie tax rules—that strategy doesn’t work anymore.  Children are taxed at their parent’s rate.

 

But there may be another way around that rule without using your kids:  use your parents or grandparents instead!                  People in the 15% or lower income tax bracket are in the zero percent capital gains tax bracket.   If you have older family members that you’re helping out financially, gifting stock could be a win/win solution for both of you.

 

Let’s say your mom is retired and basically living off of social security.  You want to help her out by giving her $10,000 to cover some of her expenses.  You can just “gift” her the money—no tax consequences for her or you, or you could “gift” her some appreciated stock.  If possible, I vote for the appreciated stock.

 

Here’s why:  suppose you have some XYZ stock that you bought years ago for $1,000, but today it’s worth $10,000.  (Good for you, by the way.)   If you sell it now, you’ll have to pay $1,350 in long term capital gains tax.  ($10,000 – $1,000 = $9,000 capital gain.  Multiply that by the 15% capital gains tax rate, then $9,000 x .15 = $1,350.)

 

Now if your mom’s only income is social security, then she’s in the zero percent capital gains tax bracket so her tax would be zero!  See why this is a good idea?

 

For 2012 you can gift up to $13,000 to someone with no gift tax consequences.  If you are married, then you and your spouse could each gift $13,000 to one person (although you’d have to prepare a gift tax return to show that you were gift splitting.)

 

This gifting of stock isn’t just limited to your parents; you can potentially gift stock to anyone that is in the zero percent capital gains tax bracket (except for your children.)  Of course you don’t want to just gift stock to people you weren’t planning of giving money to in the first place.  Once you make the gift, it’s not your money any longer.

 

This strategy may not be a viable option for 2013 so if you’re thinking about gifting stock, you should at least get your ducks in a row now so that you can do the transactions before December 31st if necessary.

 

Be sure to run the numbers with your parent’s first before just “gifting” stock to them.  There may be other considerations that you’re unaware of where the capital gains could create a problem for them.  Remember, reducing your tax burden isn’t such a great idea if it’s going to cause problems for your parents.  Be sure to look at the big picture.