Written by attorney Henry Daniel Lively

Taking a Deduction for Business Gifts

Many business owners give gifts as a part of their marketing strategy. These gifts may be deductible by the business.

"Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463."

Therefore, as a business owner giving gifts in the course of your trade or business you will need to keep track of each gift you make, who the gift is made to, and the value of the gift. As long as the gift you make is $25 or less for each person you will be able to take a deduction for this gift. If you are a sole proprietor and use Schedule C this is where the gifts will be reported. If you are incorporated the gift will be reported on your Form1120 or 1120S, and if you are a partnership or Limited Liability Company taxed as a partnership, the gift will be reported on Form 1065.

To substantiate the gift keep a log with the name of the person, date of the gift, item given, and fair market value of the gift. This schedule should be backed up with the receipt and cancelled check or credit card receipt.

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