Be it in a large enterprise setting or an intimately managed startup, tax-related questions, especially when dealing with fund usage, pop up quite often, and as corporate gifting continues to gain prominence as an effective marketing and retention tool, it’s becoming more and more essential for businesses to understand how tax laws function, in what instances deductions are permissible, and at what Dollar caps.
In this blog, we highlight some core tax functions for three core corporate gifting priorities: clients, staff, and entertainment, and advise on how businesses can capitalize on US tax deductibles on funds reserved for future corporate gift campaigns.
What Kind of Gift Expenses Are Tax Deductible?
Just as clients, associates, and staff serve businesses in varying capacities and are gifted differently, tax laws are applied in equally unique ways, taking into account the nature of the gift and the purpose thereof. So, to simplify the capacity-based corporate gift tax applications, we’ll focus on different recipients in isolation, and explain how tax deductions apply. Ready?!
Deductions On Gifts Addressed To Clients
According to a US law established in the 80s, tax deductions on client-addressed gifts valued at $25 are permissible. Yes, the amount may seem quite insignificant given the current ‘cost of living’ parameter. However, there are more details to consider. So, suppose you wish to offer a client or an associate a watch valued at $25, and shipping tallies up to $20 while packaging sits at $5, bringing the entire transaction to a $50 total. The value of the gift item remains $25, and the additional $25 packaging and shipping are simple deductible overheads, which means the full amount is deductible. Make sense?
Essentially, the above scenario highlights that the $25 deduction applies to the items themselves and not the bells and whistles that compound their value. Yes? Good!
Deductions On Entertainment-Type Gifts
In addition to tangible gifts and vouchers, clients are often offered experiential gifts such as front-row seats to live sports games, theatrical shows, and private screenings. While these naturally fall under the ‘entertainment expense’ umbrella, amounts above the $25 cap, as previously discussed, are only deductible if a representative of the business is present to host the recipient at said event. That is, if the total entertainment costs incurred between the client and a business representative sit at $300, then the entire amount is deductible. However, if the client attends the event on their own and incurs $300 in costs, then only $25 of the total is tax deductible.
In principle, entertainment gifts do not have specific caps but are calculated using the ‘reasonable spend’ scale and ought to be within the merit of the event.
Deductions On Branded/SWAG Items
In addition to the unique rules applied to tangible and entertainment-type gifts, SWAG items are a unique line item too. So, in such corporate gifting instances, each branded item’s value is capped at $4 and is fully deductible. For instance, if you launch a brand introductory corporate gifting campaign and send SWAG packages with a variety of items priced at or below $4 each to clients or staff, then the total, irrespective of the amount, is fully deductible. However, should individual items surpass the $4 price point, then only $4 of the total item cost is deductible. Capiche?
Deductions On Gifts Addressed To Staff
While SWAG and branded items afford businesses more legroom when it comes to tax deductions, staff-addressed gifts are high contenders and sit at a whopping $400 cap. So, if you decide to reward a staff member’s accomplishment with a tangible gift below $400, the total gift cost is naturally deductible, and should the item on offer surpass the $400 mark, then the business remains liable for the difference after $400 subtracted.
At Giftsenda, we understand that managing your corporate gifting budgets can be difficult, especially if you are sending gifts to various countries. For this reason, we came up with store credit and gifting solutions that enable you to either spend money upfront or pay as gifts are accepted and approved.
Moreover, should your business function outside the US jurisdiction, our team of experts can assist with more information on regional tax laws and advise on how you can effectively launch corporate gifting campaigns in line with said tax laws, for the benefit of your business.
Sound like a wave you’re willing to ride? Book a 30-minute demo with one of our Gift Campaign Managers to see how our gifting platform works and to get access to a free trial.