If you purchase a gift for your clients or employees this holiday season or for their birthday, you can deduct up to $25 per person per year. That doesn’t mean you’re limited to spending that much. That is just the limit of the tax deduction. Make sure you keep track of how many gifts you purchase so your tax preparer can calculate this accurately.
This $25 limit is per year, not per gift, so keep that in mind if you send both holiday and birthday gifts to the same people.
This $25 limit also does not apply to the costs of engraving, shipping or packaging, so you can deduct up to $25 of the cost of the gift itself and then deduct these additional costs. The gift could be subject to tax if the gift itself plus these additional costs exceeds $100.
For employees, bonuses and monetary gifts are generally treated as compensation, even if valued at $25 and under. Tangible gifts like flowers or a gift basket are generally subject to the same $25 limit. The employee is not taxed on “de minimis” gifts like holiday, birthday or congratulatory gifts.
Sending gifts this holiday season is a great way to show your appreciation for your customers and employees while also reducing your tax liability.