3. Gifts
If you give gifts in the course of your trade or business, you can deduct all or part of the cost. This chapter explains the limits and rules for deducting the costs of gifts.
$25 limit. You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use. If you and your spouse both give gifts, both of you are treated as one taxpayer. It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.Example —
Bob Jones sells products to Local Company. He and his wife, Jan, gave Local Company three cheese packages to thank them for their business. They paid $80 for each package, or $240 total. Three of Local Company's executives took the packages home for their families' use. Bob and Jan have no independent business relationship with any of the executives' other family members. They can deduct a total of $75 ($25 limit × 3) for the cheese packages.
Incidental costs
Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. A cost is incidental only if it does not add substantial value to the gift. For example, the cost of gift wrapping is an incidental cost. However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit.
Exceptions
The following items are not considered gifts for purposes of the $25 limit.
An item that costs $4 or less and:
Has your name clearly and permanently imprinted on the gift, and
Is one of a number of identical items you widely distribute. Examples include pens, desk sets, and plastic bags and cases.
Signs, display racks, or other promotional material to be used on the business premises of the recipient.
Figure B. When Are Local Transportation Expenses Deductible?
As for Figure B are: Reg 1.162-1(a); RR 55–109; RR 94–47
Figure B. When Are Transportation Expenses Deductible? Summary: This illustration depicts the rules used to determine if transportation expenses are deductible.
| Between home and regular or main job, Never deductible. |
| Between home and temporary work location, Deductible if you have a regular or main job at another location. |
| Between home and second job, Never deductible on a day off from regular or main job. |
| Between regular or main job and temporary work location, Always deductible. |
| Between regular or main job and second job, Always deductible. |
| Between temporary work location and second job, Always deductible. |
The image then lists definitions for words used in the graphic:
| Home: The place where you reside. Transportation expenses between your home and your main or regular place of work are personal commuting expenses. |
| Regular or main job: Your principal place of business. If you have more than one job, you must determine which one is your regular or main job. Consider the time you spend at each, the activity you have at each, and the income you earn at each. |
| Temporary work location: A place where your work assignment is realistically expected to last (and does in fact last) one year or less. Unless you have a regular place of business, you can only deduct your transportation expenses to a temporary work location outside your metropolitan area. |
| Second job: If you regularly work at two or more places in one day, whether or not for the same employer, you can deduct your transportation expenses of getting from one workplace to another. You cannot deduct your transportation costs between your home and a second job on a day off from your main job. |
Gift or entertainment
Any item that might be considered either a gift or entertainment generally will be considered entertainment. However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. You can change your treatment of the tickets at a later date by filing an amended return. Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. You cannot choose, in this case, to treat the cost of the tickets as a gift expense.
