A reader asked:
I am in MLM and I give to my team for completing challenges in building their business. I will give them Tiffany jewelry, cash, etc. for achieving these challenges because it builds the business! My tax preparer is convinced that I can only deduct $25 of a gift to someone whether it was for completing a business challenge or not. Am I right?
I am not a accountant, but I think your tax preparer is right. According to the IRS:
$25 limit. You can deduct no more than $25 for business gifts you give directly or indirectly to any one 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.
Anyone disagree?
Bryce on January 8th, 2006 at 3:06 pm
Get a real accountant, those are clearly incentives, awards, or bonuses. Not gifts.
g on January 9th, 2006 at 7:43 am
It’s all a matter of how you treat the transaction to begin with. If you add a line to your chart of accounts called “Commissions” or “Sales Bonus” and then run all the items you purchase thru that it’s totally legal to write it all off. Of course you are then responsible for reporting the value of said item as income to the person, either on their year-end W-2 or 1099, depending upon how you compensate them. It’s just considered part of their compensation for doing the job and therefore a deductible expense to you the businessowner.
g
Angie Carlson on January 9th, 2006 at 10:13 am
If the sales incentives (or compensation) are deemed”ordinary and necessary” for the business, the full amount is tax deductible. Gifts given to clients/customers are harder to justify as such, and therefore, the deduction is limited to $25.
Nicole on February 13th, 2008 at 11:26 pm
IRS lays out specific rules for achievement awards, length of service awards and safety achievement awards. If the employer has a written plan that spells out the rules for earning a reward, it may give the deserving employee as much as $1,600 per year without adding the award to the employee’s wages. Without a written plan, the limit is $400.