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Gift Week: Business Gift Limits

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Situation GW1: The President of Vietnam Outreach Ministries (VOM) wants to give a “thank-you” gift to a business associate. He finds a print at a Christian bookstore that is normally priced at $70, but is on sale for $24.95. Additionally, he has an engraved label made and attached to the frame for $8, sales tax is $2, and gift wrapping is $5. The total amount charged on the VOM credit card it $39.95. The president should be within the $25 “business gift” limit because 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.

From IRS Publication 463 (page 14):

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.

 

 

Dave Moja

Dave serves as Partner and is dedicated to meeting client needs in the exempt organization tax arena through review of client returns, consulting engagements, training, and the compilation of the annual CapinCrouse Higher Education Tax Reporting Trends Project. He has 30 years of accounting experience and serves several industry committees, including the AICPA Not-for-Profit Advisory Council. Dave has also served on the IRS Advisory Committee on Tax Exempt and Government Entities (ACT).

2 Comments

  • Jennifer Hargrave says:

    In reviewing this article and comparing to the De Minimis Fringe Benefit article, do you believe that there is any room to assume a certain amount of inflationary adjustment to this age-old $25 gift limit?

    Thanks.

    • Dave Moja Dave Moja says:

      Jennifer,

      This is a great question! In answer, I do not believe so. IRS Publication 463 states, “You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year.” There are several areas in the “tax arena” where amounts have not been inflation adjusted for several years – notably the $1,000 “specific deduction” on Form 990-T that has been around since 1951. There is some hope, though, as the “2014 Tax Reform” proposal seeks to raise that “specific deduction” to $10,000. Maybe we can get an increase in the $25 business gift limit at some point.

      I hope that helps!

      Dave Moja
      Tax Partner

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