Promotional Gifts Tax Deductions

The marketplace of the 21st century is highly competitive. Businesses of all types undertake a variety of strategies in order to stay ahead of the competition---not only today but into the future as well. One tactic that some businesses utilize is providing promotional gifts to enhance their customer or client base.

Function

Promotional gifts are intended to increase the customer or client base of a business enterprise. The ultimate objective of promotional gifts is to generate revenue. There are two approaches to using promotional gifts. On the one hand, promotional gifts are targeted to specific individuals to attract their business. On the other hand, promotional gifts are distributed to a wider, rather random audience of potential clients or customers. The tax consequences of these approaches differ.

Value

If a promotional program is designed to provide a gift to specific individuals to cultivate their business, the IRS establishes specific tax deduction guidelines. When a gift is intended for an individual recipient, a business can take a 100 percent tax deduction on the value of that gift up to $25. The tax deduction is available for only one gift of this nature per year. (An example of this type of gift is a holiday present to the CEO of a business partner.)

Considerations

Another course a business can take is to provide promotional gifts to a broad audience of potential clients or customers, not for individually identified persons. In such cases, the promotional gift is a business expense in the form of advertising. The cost of a promotional gift distributed in this matter is 100 percent deductible.

Technically, there is no IRS limitation on the number of gifts a particular potential client or customer receives during the course of any given year. Additionally, there is no set limit on the total cost of a promotional gift provided through this type of marketing program as far as an IRS deduction is concerned. (An example of this type of promotional gift program is a $100 gift certificate for a consumer who test drives an auto at a dealership.)

Misconceptions

In considering tax deductions for promotional gifts, a common misconception is that taking a potential client or customer out for a meal or to enjoy entertainment is eligible for the 100 percent deduction. In fact, a meal and entertainment for a potential client or customer is deductible at a rate of only 50 percent under IRS rules and regulations.

Warning

Promotional gift deductions and other tax deductions associated with a business enterprise can be complicated. A business of any size typically is best served through retaining the services of an experienced tax accountant or tax lawyer to assist in this process.

References

• Bank Rate, A Dozen Deducations for Your Small Business
• Internal Revenue Service, Business Expenses
• "Taxpertise"; Bonnie Lee; 2009

Resources

• Business.gov, Small Business Tax Deductions