Client Gift Giving and Taxes

When you provide closing and thank you gifts to clients, you can deduct the expenses on your Federal income taxes, but you are subject to several rules. In fact, in some cases, only part of a gift expense can be deducted. Gifts and taxes can cause some confusion, and here are some of the most common concerns about income taxes and closing gifts to help shed some light on the subject.

Are Client Gifts Tax Deductible?

The answer to this question is "maybe." In some cases, closing gifts are fully deductible. For instance, if the value of each gift is less than $25.00, you can claim the entire cost as a tax deduction. However, gifts over that may only be partially deductible.

You can increase your tax write-off when you give gifts to couples. Since the $25.00 deduction is "per person per year," it doubles to $50.00 when a couple receives your gift.

Since there are several essential benefits to giving closing and thank you gifts, many real estate agents feel they are valuable investments, even if they are not fully tax-deductible.

The hardest thing in the world to understand is income tax.

Albert Einstein

Where Did the $25 Tax Limit Come From?

The limit on business gift deductions has been around for a very long time. It was first established over 60 years ago in 1954. The Internal Revenue Service has kept this antiquated rule on the record without allowing for inflation over the years. In reality, $25.00 in 1954 would be worth over $200.00 today. However, until changes are made, real estate agents should abide by the law.

Are Any Gifts Fully Deductible?

There are two kinds of gifts that give you a full federal income tax exemption. They are branded gifts and gifts to businesses. Here are some examples:

Branded Gifts

A branded gift could be any of your promotional items. They have your business and contact information printed on them. The items cannot cost more than $4.00 each, and you must purchase more than one for giveaways.

Business Gifts

When you provide gifts to an entire business, you can deduct the whole expense. However, business gifts for a salesperson or company officer are subject to the draconian limit rule.

How to Get a 50% Deduction

Did you know you can deduct half of your client entertainment expenses? If you take clients out to dinner or the theater, these expenses are deductible. Gifts like tickets to ball games also fall under the 50% rule.

How Can I Get the Most from Closing Gift Deductions?

Keep detailed records of all your transactions. Include all expenses like shipping, sales tax, and gift wrap fees. Save all of your receipts in a safe place, so they are handy at tax time.

In Review

As a general rule, closing gifts are subject to limits of only $25.00 for business tax deductions. This deduction doubles for gifts to couples. However, there are exceptions to this rule. If your gift is a promotional item less than $4.00, you can deduct the entire amount. 50% of your entertainment expenses are deductible. When you provide gifts directed to entire organizations, you receive a full tax deduction. Be sure to keep detailed expense records in case of a tax audit.

Disclaimer: This article is for informational purposes only. It is not intended as tax or legal advice.

 

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