Are Corporate Gifts Taxable?

Taxes are an important aspect for any business, and believe it or not, your corporate gifts are actually taxable, pending that they meet the requirements. The following rules are implicated in United States of America, through the Internal Revenue Service (IRS).

 

In the USA, the IRS sets a $25 cumulative cap. This means that your corporate gift, in order for it to not be taxed, needs to be less that $25 in value. This is applicable for one recipient in one year. For example : For you to not be taxed for your corporate gift, Employee X/Client X can only receive $25 worth of gifts in one working year. If you happen to spend more than $25 for one recipient in one year, then your corporate gift will be liable for tax (based on the extra amount spend).

 

Let’s say that you bought Employee X/Client X a $10 clock in January. You are still able to spend $15 more on Employee X/Client X for the rest of the year. But to put it into context, if you happen to get Employee X/Client X a $20 chocolate box later in June : you have exceeded the limit by $5. You will then, by the rules and regulations of the IRS, be taxed based on that extra $5 spent.

 

There are exceptions to this $25 cumulative cap. One of them are incidental gift costs. Incidental gift costs are referring to shipping costs, wrapping costs, engravings etc. Any additional cost that are added onto the value of the gift, but is not actually the gift. These are permissible. But it is important to note that the IRS only allows this if the incidental costs do not add too much value to the gift.

 

Another exception to the limit is distribution of mass corporate gifts (more known as corporate swag). This is when a business creates a large event, or goes to many corporate events and wants to give away their swag. By these means, your corporate gifts will not be taxed. The conditions that need to followed are : 1. Your corporate gift must (individually) be less that a $4 value.  2. Your corporate gift must include your company’s logo and name. 3. Each item, from the collection, needs to be identical (this means if you’re giving away pens, all the pens must be the same).

 

Last exception to this limit, is if the gift is completely non-related to business. Then the $25 limit does not even apply. To put it into context, let’s imagine your client inviting you to their personal birthday party and you got your client a birthday gift. Due to the fact that this is not a corporate event, therefore, your birthday gift has nothing to do with the company. And is officially not called as a corporate gift.

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