Deduction for Gift Cards

[S T]

We all know that Gifts/Gift Cards to Clients are limited to $ 25 per person (which includes husband/wife or per household)

I have 3 scenarios for feedback

Tax Client sells a job for $ 24,000 and receives a 1/% commission - which would be $2,400, would like to show Client Appreciation

Tax Client sends the Client a Gift Card for one of the following, Amazon, Crate and Barrel, Macy's, etc for $100 -- Deduction on Tax Client's return would be $ 25

Tax Client sends the Client a Gift Card for one of the following, Outback Steakhouse, Red Lobster, etc, for $ 100 - Deduction on Tax Client's return would be $ 25 as gift card, or would the gift be a deduction as Entertainment Expense subject to 50% - making the deduction $50

Tax Client sends the Client - Concert Tickets Value $ 100- would be subject to 50% reduction of value and reported under meals/entertainment?

Tax Client sends the Client a Gift Card, or other Gift - is there a deduction for Business Promotion - particularly if the Card (twist on this) if it is a referral fee - and it might possibly be "Business Advertising/promotion" ???

Are there any ways that a tax client can show customer appreciation, and receive a $ for $ tax deduction rather than the Gift Limit or Entertainment Limit?

Thanks,

Sandy

[buzzardbreath]

De Minimis

We all know that Gifts/Gift Cards to Clients are limited to $ 25 per person (which includes husband/wife or per household)

I didn't know this, as in a limit of $25 for the deduction. I believe the limit may be what can be excluded in income by the recipient.

A company spends $250 on gift certificates and gives them to 10 customers, or 10 employees. I do believe the company can deduct the entire $250 as a business expense, but the recipients (especially employees) are exempt from having to show income.

There are other issues involved if the company issues gift certificates for its own goods or services at no cost to itself. Deductibility may be limited to amounts redeemed.

[TaxGuyBill]

Although Publication 463 does mention there could be circumstances that you decide if it's a gift or entertainment, I would think it would be extremely rare. In order to qualify for the meal/entertainment deduction, it would NEED to satisfy one of the two qualifying tests. There are very few scenarios that 'entertainment' would satisfy one of these tests if you are not with the client.

http://www.irs.gov/publications/p463/ch02.html#en_US_2013_publink100033852

http://www.irs.gov/publications/p463/ch02.html#en_US_2013_publink100033856

Publication 463 specifically says "To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided."

http://www.irs.gov/publications/p463/ch02.html#en_US_2013_publink100033880

Yes, if you have a program of giving 'referral fees', that is just like a commission, and can be fully deductible. You may want to be careful that the 'referral fee' program is uniform with all clients, or it could be problematic.

Advertising is a bit weak. You would need some way to show that this 'gift' is actually promoting your business. I would shy away from that, unless you can add more to the 'advertising' aspect of it, such as the potential client coming in for a discussion about potential business in order to receive the gift card.

[taxea]

there is also Pub17 pg 183

[JohnH]

Interesting thread.
So a self-employed medical sales rep walks into the doctor's office every Wednesday morning with a $60 box of bagels and cream cheese. She doesn't eat any herself, but rather leaves it in the break room for the office workers and professional staff to enjoy. Her expectation is that they will remember her company when they order medical supplies. That's $3,000 in the course of the year - not an insignificant amount. Is it a legitimate $3,000 Advertising & Promotion deduction which reduces her tax ability by at least $900, or is it something else?

[buzzardbreath]

Legitimate, I would say

I do believe this is a legitimate deduction just as any promotional gift would be.

The only question is whether it should be reduced by 50% by virtue of being "meals and entertainment". No question is "food" but extending its properties to "meals and entertainment" might or might not be proper.

[S T]

Glad that I can do some thought provoking. This was a question from one of my "better clients" and we are brainstorming on

The Gift Card Issue and/or Promotion - it is Client Appreciation, however, IRS that I can find does not view it that way (back to draconian 1954) - so appears to be a "gift card" limited to $ 25 per husband/wife/household deduction - I just know my client would like to give $ 100- or more.

From Nolo.com If you give someone a gift for business purposes, your business expense deduction is limited to $25 per person per year. Any amount over the $25 limit is not deductible. If this amount seems awfully low, that’s because it was established in 1954!

A gift to a member of a client's family is treated as a gift to the client, unless you have a legitimate nonbusiness connection to the family member. If you and your spouse both give gifts, you are treated as one taxpayer—it doesn’t matter if you work together or have separate businesses.

Client and I want to obviously prepare the return correctly, and taking the appropriate deductions on the tax return

Thoughts and ideas along with meeting the IRS regulations, are welcomed! I am still thinking that a gift card to H/W will be limited to $ 25 rather than $ 50 - Am I reading to too much into this???

I do not believe I can encourage the taxpayer for any deduction on the Entertainment Expense aspect, unless it is maybe concert tickets, etc. possibly

So much for the idea of thinking about advertising and promotion expenses based on the posts to my original thread - do not believe that will work

I value all ideas that have posted - trying to guide the Tax Client in the right direction for biz expenses.

Thank you

Sandy

[Burke]

A company spends $250 on gift certificates and gives them to 10 customers, or 10 employees. I do believe the company can deduct the entire $250 as a business expense, but the recipients (especially employees) are exempt from having to show income..

I believe you will find in the case of employees, that a gift certificate is considered cash and is reportable by the employee as compensation. The employer/employee relationship negates the use of "gifts" to employees per se, unless the distribution can be classified as an award under a written plan for reaching certain milestones, such as anniversaries of employment. A gift card is treated the same as a bonus, and goes in the W-2, whereas a product such as a holiday ham or turkey can be considered de minimus and not taxable.
See https://www.irs.gov/pub/irs-tege/p_4..._0305_text.pdf.

[TaxGuyBill]

Interesting thread.
So a self-employed medical sales rep walks into the doctor's office every Wednesday morning with a $60 box of bagels and cream cheese. She doesn't eat any herself, but rather leaves it in the break room for the office workers and professional staff to enjoy. Her expectation is that they will remember her company when they order medical supplies. That's $3,000 in the course of the year - not an insignificant amount. Is it a legitimate $3,000 Advertising & Promotion deduction which reduces her tax ability by at least $900, or is it something else?

Maybe I'm too strict, but unless the bagels are imprinted with the names of drugs (advertising), I would say it's limited to 50% for meals and entertainment.

I would total the number of employees in the doctor's office, and max out the $25 per person gift limitation. Then the rest can be applied to 50% meals and entertainment.

Again, maybe I'm too strict.

[JohnH]

I think you're probably too strict. It might be 50% if the sales rep stuck around to socialize and ate bagels with them, but as things stand I think she's OK.

Another similar scenario is when the sales rep holds a "Lunch & Learn" session in the customer's office for training, education, or promotion purposes. If they do the training/education/promotion part in the office, then she takes everyone out for lunch, it's subject to the 50% haircut. But if she brings in lunch or has it catered, and does the training/education/promotion on-site while they eat, it isn't subject to the 50% haircut (even if she eats with them while doing the training).

[TaxGuyBill]

I think you're probably too strict. It might be 50% if the sales rep stuck around to socialize and ate bagels with them, but as things stand I think she's OK.

Another similar scenario is when the sales rep holds a "Lunch & Learn" session in the customer's office for training, education, or promotion purposes. If they do the training/education/promotion part in the office, then she takes everyone out for lunch, it's subject to the 50% haircut. But if she brings in lunch or has it catered, and does the training/education/promotion on-site while they eat, it isn't subject to the 50% haircut (even if she eats with them while doing the training).

This conversation intrigues me, so I did a bit of research. If you want to save yourself some reading, I now agree, the bagels are 100% deductible. However, what I found kind of surprised me (sorry about the technical gibberish):


Although employers may be able to deduct 100% of meal for employees for meetings (§274(e)(5)), it doesn't work that way for contractors after 1986 (§1.274-2(f)(2)(i)) unless the food/entertainment is part of a paid program (§ 274(e)(8)).

http://www.law.cornell.edu/uscode/text/26/274#e_5

http://www.law.cornell.edu/cfr/text/26/1.274-2#f_2

http://www.law.cornell.edu/uscode/text/26/274#e_8

According to several Technical Advice Memorandums, unless it qualifies for one of the exceptions in §274(e), the 100% deductibility depends on if it qualifies as a "de minimis" fringe benefit. For this purpose, "employee" means anybody receiving the benefit (even independent contractors, etc.) -- §1.132-1(b)(4).

http://www.irs.gov/pub/irs-wd/0030001.pdf

http://www.law.cornell.edu/cfr/text/26/1.132-1#b_4

The rule for deductible de minimis fringes: "Gross income does not include the value of a de minimis fringe provided to an employee. The term “de minimis fringe” means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable.

http://www.law.cornell.edu/cfr/text/26/1.132-6

I agree, that bagels and probably the "Lunch and Learn" would be "so small as to make accounting for it unreasonable or administratively impracticable" (de minimis) to individuals. I was wondering if the IRS might view it as a cumulative amount and include the ENTIRE amount of food as taxable as given to the COMPANY. Although not definitive, the fringe benefit Regulations seem to consistently refer to "person" or "individual", so I don't think that would be the case.

http://www.law.cornell.edu/cfr/text/26/1.61-21

Thank you for an interesting research project!

[JohnH]

Wow! Thank you for all that research and the cites.

You've also given me some things to investigate, because I have a couple of client situations in which this issue is highly relevant. I think I'm going to review everything thoroughly, just to be sure I'm providing correct advice to both of them.

I appreciate your persistence.