Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Deducting Business Gifts
$25 Limit
You can deduct up to $25 for business gifts you give directly or indirectly to each person during your tax year. If an item can be construed as either a gift or entertainment, it is generally considered entertainment.
A gift to a company that is intended for the personal use of a particular person or class of people is considered an indirect gift to the individual person or the persons within the class intended to be the recipients of your gift.
If you give a gift to a member of a customer's family, it is generally considered an indirect gift to the customer. This rule does not apply is you have a bona fide, independent business connection with the family member and the gift was not intended for the customer's use.
If you and your spouse both give gifts, both or you are treated as one taxpayer. This rule applies even if you and your spouse have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient.
For example, your company does business with a local business. To thank them, you and your spouse give the business three gift baskets costing $60 each for a total of $180. Three employees of the local business take the gift baskets home for their use. Your deduction is limited to $75 ($25 x 3).
If a partnership gives a gifts, the partnership and the partners are treated as one taxpayer.
The following two items are not considered gifts for purposes of the $25 limitation (don't include them in figuring the $25 limitation):
1. An item that costs $4 or less and:
- Has your name clearly and permanently imprinted on it and
- Is one of a number of identical items you widely distribute, such as pens, desk sets, bags and cases.
- Note: You don't have to keep records of who you gave these items to. You simply deduct the total cost of these items and hand them out to business associates.
2. Promotional materials:
Such as signs, display racks, to be used on the business premises of the recipients
Incidental Costs
Incidental costs, such as engraving on jewelry, packaging, insuring and mailing are not included in determining the cost of a gift for purposes of the $25 limit.
However, a cost won't be considered incidental if it adds substantial value to the gift. For example, if you purchase an ornamental basket for packaging a fruit basket and the value of the basket is substantial in relation to its contents, this is not an incidental cost. Add the cost of the basket to the cost of its contents. If you simply have the fruit gift-wrapped, this would be an incidental cost.
Bonuses to Employees
If you pay bonuses to employees, make sure you do not describe such payments in your records as gifts. If audited, an IRS auditor seeing this description may limit your deduction to $25, the amount allowed for a gift. You would have to prove that any excess over $25 was compensation.
Husband and Wife
You and your spouse are considered as one person for figuring the $25 limitation. If you give the spouse of a business associate a gift, it is considered given to the business associate.
If the spouse of a business associate has a bona fide business connection with you, independent of your business associate, the gift is not considered as made to the associate (unless it is intended for the associate's use).
Packaged Food
Packaged food given as a gift that is intended to be consumed at a later time is a gift.
Giving Tickets to Events
Giving business associates tickets to theater or sporting events, where you do not also attend the event with them, may be treated as either gifts, subject to the $25 limitation or as entertainment expenses subject to the entertainment expense rules.
When Giving Tickets to Events are Not Gifts
If you give business associates tickets to the theater or a sporting event and you accompany them, the cost of the tickets are not treated as a gift, they are entertainment expenses. Deduct 50% of the face value of the tickets even if you had to pay more, for example, to a scalper.
Gifts that Do Not Come Under the $25 Limitation
- Tax free scholarships
- Tax free prizes and awards, and
- Achievement awards to employees in recognition of length of service or safety achievement.
Bear in mind, employee awards must not be disguised compensation. To avoid misconstruing an award for compensation, don't present them around the same time annual salary adjustments are given.
In addition, do not give awards that discriminate on behalf of highly compensated employees.
The deduction amount you're allowed for employee awards depends on whether the achievement award is considered a qualified plan award or a non-qualified plan award.