'Tis the season to thank your best clients, and gifts are a great way to show your appreciation. Happily, the cost of business gifts is also tax deductible; the IRS permits a maximum deduction of $25 on gift costs per client.
The trick to maximizing this tax deduction is to purchase gifts that cost less than (or close to) $25, but it's not easy to find meaningful gifts at such a low price.
To help, we compiled a list of unique client gifts that cost $50 or less, all of which can be ordered online.
You'll also find instructions on how to claim the cost of client gifts as a tax deduction at the end of this article.
UrbanStems makes sending flowers a quick, easy, and relatively inexpensive process. Seasonal bouquets start at $35 and can be ordered online. Deliveries are made within an hour of purchase.
Note that UrbanStems is still expanding as a business. Delivery is currently limited to Manhattan, Brooklyn, and Washington, DC.
Entrepreneurs love to support other entrepreneurs. Rather than gift an item, consider funding a donation on your client’s behalf. Heifer International allows you to gift an animal in your client’s name to a person in need.
According to the site, gifting an animal is “like giving someone a small business”—the owner can support themselves and their community by selling what the animal produces, like eggs, milk, and wool.
You can partially or fully fund the purchase of an animal in your client’s name here.
If your client is a dog owner, why not buy something for their pooch? Launched by New York fashionista Melinda Montney, Dog & Co. is an online store that offers a vast collection of unique, stylish dog products, many of which are under $50.
How to Deduct the Cost of Client Gifts
Now that you have a few ideas about what to buy your clients, let’s look at how you can claim the cost of client gifts as a tax deduction.
Per Gift Dollar Limit
Note that you can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Additionally, if you purchase a gift for a customer’s family member, it will also count as part of that same $25 limit (remember, the $25 deduction limit is "per gift, per client"). Similarly, if you and your spouse both give gifts to the same customer, you are treated as a single taxpayer and your combined purchases are subject to the $25 limit.
Incidental costs are not subject to the gift limit. Examples of incidental costs include packaging, insurance, shipping, and engraving the gift. As long as they don’t add any substantial value to the gift, you can deduct the entire cost of incidentals as a separate business expense.
Happy holidays, and happy gifting. For more tax, bookkeeping, and accounting support, check out the Bench Syllabus.