As a Realtor you may find yourself giving gifts to clients and customers in the course of your business, particularly after a closing. What you may not know is that you can deduct only part of the cost of certain gifts as a business expenses.
For purposes of this discussion, a gift is any item that’s excluded from gross income of the recipient under the gift tax laws. If an item is excluded from gross income under any other provision, then it’s not considered to be a gift. For example, because scholarships are excluded from income under another tax law provision, they are not considered gifts. Similarly, a “gift” to an employee will be treated as taxable compensation for the employee, which is deductible for your business under the normal rules for employees’ pay.
Dollar limitation. Basically, the IRS will let your business deduct only $25 or less for business gifts you give to any one person during your tax year. This means that any number of your employees, co-owners, or business partners may give a client business gifts. However, the deduction will be limited to $25 per recipient.
Any amount of expense in excess of $25 is disallowed as a deduction. So, if you give a client a $50 dollar watch as a gift, you can only deduct $25. In addition, if you and your spouse both give gifts, you’re both going to be treated as one taxpayer. Consequently, the deduction both you and your spouse, together, will be able to claim is $25 per donee. This is true even if you have separate businesses, are separately employed, and each of you has an independent connection with the gift recipient.
CAN YOU THINK OF A WAY AROUND THIS LIMITATION???