When running your business, oftentimes you will need to buy gifts for partners, prospective clients, or employees. The question becomes… can a gift be a tax Write Off?
In general, gifts are not taxable. However, the IRS puts a cap on the amount of money a person can “gift” to another person by establishing yearly and lifetime limits. You can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it. If you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you need to file a gift tax return. The lifetime limit is $11,180,000.
There are some other rules for deducting gifts you might want to be aware of:
- Gifts to individuals. Ordinarily, you cannot claim a deduction for gifts you make unless it is a charitable contribution made to a tax-exempt organization. A common pitfall taxpayers run into is donating to crowd-sourced fundraising campaigns for individuals. For example, a local family loses their home to fire, so a friend sets up a fundraising page asking for donations to help the family get back on their feet. If you donate to the family, it is considered a personal gift and you cannot claim a deduction.
- Medical expenses paid for someone else. Typically, you can only claim a deduction for medical expenses paid for yourself, your spouse, or any dependents. However, you may be able to claim a deduction for medical expenses paid for someone else, such as an elderly parent in a nursing home or an adult child. There are special rules and income thresholds to navigate, so it’s a good idea to talk to a tax professional before claiming such a deduction.
- Business gifts. If you own a business and give gifts to your clients, you may be able to claim the gift as a business expense. However, deductions for business gifts are limited to no more than $25 per person.
Knowing what you can and cannot deduct can be difficult which is why it is vital to have a professional take care of your tax preparation. As a business, there are over 250 different tax deductions that COULD be applicable to your and your situation. Knowing which deductions apply to you could save you thousands every year.
If you have tax questions, please schedule a free consultation to see how we can help you keep more money in your pocket!