Kutchins, Robbins & Diamond, Ltd. Certified Public Accountants and Advisors

The Tax Deductible Difference Between Gifts and Entertainment

One of the keys to building a successful business is nurturing and maintaining positive contact with clients, vendors, and other business associates. One strategy many business owners will use is to give out gifts as a token of appreciation. However, IRS tax rules have traditionally been very tightfisted when it comes to deductions for business gifts—a business may only deduct $25 worth of gifts to a single recipient each year, and attempting to get around this rule by involving a spouse as either giver or recipient will not be permitted.

However, there is a way to maximize these sorts of deductions by utilizing a particular semantic quirk of the tax code. While business “gifts” are limited to a deduction of $25 per recipient per year, qualifying business “entertainment” deductions may be made at a full 50% of their cost, with no set dollar limit.

With that in mind, one can get creative with the types of gifts given, aiming for gifts that qualify as entertainment: tickets to shows or sporting events, for example, can be deducted as entertainment expenses whether you attend them with the recipients or not. (Note that if you do attend with your business contacts, the tickets must be claimed as entertainment deductions.)

Your business strategy for either gifts or entertainment will be determined on a case-by-case basis…you may choose to give some contacts a $20 gift card each year, and other, more vital contacts a $200 ticket to a Broadway show. By being aware of the difference between gifts and entertainment, however, you’ll reap a larger tax benefit on that Broadway ticket than you would if you’d claimed it as a gift.  Contact us today to learn more. 

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