Staying on top of all your deductions is essential to mitigate your tax liabilities. One area that is often overlooked is business gifts and donations. These expenses can add up quickly and, if not reported correctly, can result in missed deductions. This blog post will cover the tax implications of business gifts and donations and how to report them on your taxes correctly.
First, let’s define what a business gift is. According to the IRS, a business gift is a gift given by a business to a customer, client, or employee. The gift can be tangible or intangible, and its value must be less than $25 per person per year to be tax-deductible. Business gifts can include items such as pens, mugs, t-shirts, or gift cards.
Now, let’s talk about donations. A donation is a charitable contribution made by a business. These donations can be monetary or in-kind, and the business can deduct the fair market value of the donation on their taxes. It’s important to note that donations made to individuals, political organizations, and lobbying groups are not tax-deductible.
It’s important to keep accurate records of all business gifts and donations. This includes the date of the gift or donation, the name and address of the recipient, and a brief description of the gift or donation. Suppose the gift or donation is over $250. In that case, a written acknowledgment from the recipient is required in order to claim the deduction on your taxes.
When reporting business gifts and donations on your taxes, it’s important to keep in mind that there are limits. Business gifts and donations are reported on Form 1040, Schedule A, and are subject to a 2% limit of your adjusted gross income. This means that if your adjusted gross income is $100,000, you can only deduct up to $2,000 in business gifts and donations.
It’s also important to note that there are different tangible and intangible gift rules. Tangible gifts, such as a pen or mug, can only be deducted at the cost of the item. In contrast, intangible gifts, such as gift cards, can be deducted at face value of the gift card.Business gifts and donations can be a great way to save on taxes. Still, it’s important to understand the tax implications and to report them on your taxes correctly. It’s always a good idea to consult with a tax professional to ensure you take full advantage of all the potential deductions you’re eligible for. Contact Shurek Accounting & Tax for any questions about gifts and donations at https://www.shurek.com/contact/.