The corporate gift industry is expected to grow by $64 billion in the next couple of years — reaching $306 billion by 2024. Companies are not only increasing the frequency of client and employee appreciation gifts, but also the amount they spend on them. That’s easier said than done due to tax restrictions. The IRS hasn’t raised the $25 limit on business gifts since the law was established in 1962. There is no limit on how many business gifts you buy or how much you spend. However, you can only deduct $25 per person. For example, if you send each of your clients a $50 gift basket, you may only deduct $25 per gift. Let’s unwrap the corporate gift to reveal deductible business gifts that positively impact your people and your tax return — regardless of the amount.
The Evolution of the Corporate Gift
The first recorded corporate gift dates back to 1883 when John D. Rockefeller gave his employees calendars. By the 1900s companies were handing out branded pens and keychains as fun promotional tokens. In the 1950s business gifts became a bit more creative as company merch expanded to t-shirts and coffee mugs. In more recent years, as businesses started seeing the connection between brand association and customer loyalty, the purpose of corporate gifts began to shift.
Fast forward to our post-pandemic world. Today’s business owners, HR managers, and marketing execs are looking for meaningful corporate gifts to attract, motivate, and retain employees and strengthen relationships with clients. Before you get lost in the virtual vortex Googling deductible business gifts, let’s take a look at the tax implications for your business and your associates.
Choosing Deductible Business Gifts Can Be Taxing
Although corporate gift giving has evolved, the fifty-five year old tax law has not. According to the IRS, organizations can deduct gifts of up to $25 for each individual per tax year. This includes direct gifts given to an employee, or indirect gifts given to the family of an employee or to a client. The law does not account for inflation or the fact that companies want to give something more thoughtful than a holiday ham, service award plaque, or the predictable corporate gift basket.
In fact, let’s take a peek at the cellophane wrapped basket filled with sweet and savory snacks. Gourmet baskets range anywhere between $50 to $200 or more. If you send a gift basket to your clients every year, you can only deduct $25 per basket. You’ll have to absorb the remaining expense as a loss. What’s more, what if some of your employees or clients have food allergies or an aversion to alcohol? Not only are you losing out on tax benefits, but your gift may not be well-received. That is one reason why many companies are embracing retail gift cards so recipients can choose their gift. However, your business associates may not be smiling when tax season rolls around.
Tax Ramifications of Retail Gift Cards
As many companies transitioned to remote and hybrid work models, gift cards became a popular way to show appreciation to employees. They are easy to send and recipients can use them to buy what they want. In a recent survey, gift cards – both physical and digital – account for 37% of all corporate gifts. In fact, more than half of the study participants include gift cards in their corporate gifting programs. The average card value is between $75.00 and $100.00 — much higher than the tax limit.
Regardless of the amount, traditional gift cards raise a red flag with the IRS. Gift cards are considered cash equivalents and are subject to payroll and income taxes. That’s not exactly the type of end-of-year bonus employees want to receive. For example, if you give your employees a $50 Thanksgiving turkey it is not considered taxable income. Conversely, if you give them a $50 Visa gift card to purchase a holiday turkey, the gift card value is considered taxable income. When you give employees gift cards of any denomination, you must withhold federal, state, and local income taxes and deduct the employee’s share of Social Security and Medicare taxes. Next, you’ll have to pay unemployment tax on these amounts. Then you’ll have the added headache of reporting the taxable payments to the IRS on your quarterly payroll tax report, and the annual income tax report for employees and the Social Security Administration.
Employee Gifts That Impact More Than Your Tax Return
Here’s the good news. There is one type of gift card that is 100% tax deductible for your business and has no negative tax repercussions for you or your employees. TisBest Charity Gift Cards are the best deductible business gifts for employees without the head-spinning tax ramifications. They work just like traditional gift cards, except you decide the donation amount and your employees pay it forward to their favorite charities. Your business writes off 100% of the card value. (You file the deduction, your employees do not.)
Unlike traditional gift cards, TisBest Charity Gift Cards cannot be redeemed for cash. When you buy TisBest Charity Gift Cards, you’re making a charitable donation to TisBest Philanthropy, a donor-advised fund and IRS approved 501(c)(3) charity. The tax-deductible donation happens when the charity gift cards are purchased, but they can be given and redeemed anytime. At the time of your purchase, you’ll receive an itemized receipt to submit with your corporate tax return. When employees redeem their cards, TisBest will send 100% of the gift card value to the charities of their choice.
Removing the Red Tape from Client and Vendor Gifts
Sending gifts to clients and vendors adds another layer of complexity. First, ask yourself if your gesture will be well-received by all recipients — regardless of religious or cultural beliefs, dietary restrictions, or other personal preferences. Second, even if you find the perfect gift, some organizations, government employees, and C-suite level executives are contractually unable to accept them.
TisBest Charity Gift Cards are the perfect way to show your appreciation to clients and vendors because they are not monetary gifts. The value of the card is a charitable donation. Your client simply enters their gift card code on the TisBest website and designates the receiving charities. Plus, these deductible business gifts are easily trackable, allowing you to gain unique insight about your clients’ values. After clients redeem their cards, your TisBest spend report will update to show which charities they supported. On your next business call you can talk about their charitable giving experience and learn about their affinity for certain causes. It’s a great way to strengthen relationships with your clients without all that red tape.
Deductible Business Gifts Exempt from the $25 Limit
Whether you buy a $25 dollar card or $2,500 dollars worth of cards, TisBest Charity Gift Cards are 100% tax-deductible for your business and are not subject to tax withholding for your employees or clients. That means you can send as many cards in any denomination as often as you like. TisBest Charity Gift Cards are the best deductible business gifts to:
- Congratulate an employee for a job well done
- Motivate your team with a unique team-building gift
- Welcome new employees
- Thank your clients for contributing to your company’s success
- Spread holiday cheer
- Give to prospective customers at trade shows
In addition to the recognition, you’ll be giving them the opportunity to support the causes that are near and dear to their hearts. Plus, regulated industries can rest assured as charity gift cards are FINRA-compliant. It’s a gift that will make your employees, clients, your compliance officer, and your CFO happy.
One Donation, One Receipt, Multiple Charities
Rather than donating to individual charities on your associates’ behalf, you can support all of their varied favorite charities in one transaction through TisBest. TisBest Philanthropy is a 501(c)(3) registered charity under EIN 20-8630809. When you purchase TisBest Charity Gift Cards for employees and clients you’ll receive one receipt for your total donation. In turn, your gift card recipients pay their card value forward to any of the 1.8 million U.S.-registered 501(c)(3) organizations on the TisBest website. You can rest assured that your donation will benefit reputable charities – all while remaining anonymous to the receiving organizations.
Redefine Corporate Gifting
Before we head into the holiday season — the most popular time of the year for corporate gifts — consider the tax ramifications for you and your associates. You could spend hours scouring the internet for deductible business gifts and consulting a tax professional – or simply join us on the mission to #RedefineGifting with meaningful gifts that give back.
Order Your TisBest Charity Gift Card Today! You know your clients and employees best. We’re here to help you connect with them. Contact our sales team today at 206-501-3005 or firstname.lastname@example.org and we’ll design a custom-branded TisBest Charity Gift Card for you. Or create your own in just a few easy steps!