Many businesses scramble around at year end to come up with clever, relevant holiday gifts to send to customers to reinforce brands and cement business ties. But the most memorable ideas aren’t necessarily the most expensive. In today’s high-paced, electronic world, a well-thought-out holiday card with a personalized, handwritten message can sometimes be a refreshing change of pace.
Tax Rules for Holiday Gifts
The tax code helps subsidize corporate gift-giving. But the limits aren’t overly generous. The most you can deduct for business gifts is $25 a year to any one individual. You can also deduct certain other costs, such as engraving, wrapping and mailing the gifts.
The following items are not considered gifts for purposes of the $25 limit:
- An item that costs $4 or less and (1) has your name clearly and permanently imprinted on the gift and (2) 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.
Here are five more rules to keep in mind:
1. If you give a gift to a member of a customer’s family, it is generally considered an indirect gift to the customer, unless you have a bona fide business connection with the family member.
2. If you and your spouse both give gifts, you are both treated as one taxpayer. It does not matter if you have separate businesses, are separately employed, or if 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.
3. Certain promotional items are not considered gifts for purposes of the $25 limit. Specifically, if an item costs $4 or less, has your name imprinted on it, and is one of a number of identical items you widely distribute, it does not count as a gift for tax purposes. Examples include pens, desk sets, and plastic cases.
4. If you give a customer an expensive food basket, can you deduct it as a meal expense and get a higher deduction? No, because the rules specify that packaged food or beverages that are intended for use at a later date must be treated as a gift.
5. What about tickets to a sporting event or theater performance? The IRS says you have a choice if you give tickets to customers and you do not go with them to the performance or event. You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage, according to IRS Publication 463, Travel, Entertainment, Gift and Car Expenses.
However, if you do go with the customer to the event, you must treat the ticket cost as an entertainment expense. You cannot choose to treat it as a gift expense.
Coming up with fresh new holiday gift ideas year after year can be daunting, especially if you don’t have a dedicated marketing department. Here are some well-executed examples to get your creative juices flowing:
A CPA firm sent out calendars with monthly tax tips and reminders. The pictures were sepia images of the staff’s children dressed like business people. One month even featured the managing partner’s Golden Retriever wearing a tie, surrounded by ten-key tape. In addition to the monthly tip or reminder, each picture included a caption about who was featured — and it became a frequent conversation piece during client meetings the next year.
A manufacturer held a contest in which the worker’s children drew nondenominational winter scenes to use on the front of the company’s holiday card. Participants were split into age groups, and three “winners” were featured on the backs of professionally printed holiday cards. In reality, every child who participated was a winner and received a publish-your-own-book kit. This crafty idea created goodwill with customers and employees alike.
A family-owned homebuilder sent holiday cards to new and prospective homebuyers that featured its employee-family members volunteering at a local food pantry on Thanksgiving. The message inside read, “From our family to yours, sharing the gift of caring. A $25 donation will be made to the [town’s food pantry] in your family’s name.”
An advertising agency sent out e-cards featuring its employees singing or playing instruments to the tune of “Jingle Bells.” The card looked similar to the old game show “Hollywood Squares.” Recipients could click on an individual square to listen to an employee playing solo — or hear them all play together like a garage band. The underlying message was, “We’re creative, fun and easy to do business with!”
An insurance firm delivered gourmet cupcakes to top clients the week before Thanksgiving. Their staff — not just the CFO or owner — could enjoy the thank-you treats. More importantly, the sentiment wasn’t lost in the flurry of mid-December fruit basket and candy deliveries. By hand-delivering the cupcakes, brokers could also say thank-you in person and engage in a little low-key small talk.
Picking a Winner
When deciding on an appropriate holiday gift to send to your customers, ask whether it possesses these key attributes:
Relevant. Send a holiday gift that resonates your brand. In other words, there should be a connection between your marketing position and what you’re gifting. A creative agency that sends traditional fruit baskets isn’t going to be seen as innovative. A manufacturer of high-quality products shouldn’t send desk toys that break easily. Identify what differentiates you and find a gift or concept that speaks to your brand image and priorities.
Appropriate. Horror stories abound about inappropriate holiday gifts, such as bottles of champagne sent to recovering alcoholics (or pregnant women) and candies sent to diabetics. In general, stay away from alcohol, religious items and gifts that are too personal, such as perfume or jewelry. Exceptions might be made from this list of gifting faux pas. For example, alcohol might be appropriate if a major customer is a French wine or Irish whiskey connoisseur.
Gifts should also be modest. Extravagant gifts could make the recipient feel uncomfortable or, worse, be perceived as bribery, especially if you’re involved in a bidding process. Always check with your personnel or legal department about corporate gifting policies — and be aware that some customers may have policies that prohibit employees from accepting gifts.
Personal. Gifts should reflect the recipient’s interest, hobbies and tastes, if possible. When sending a one-size-fits-all gift to customers, consider engraving each one with the recipient’s initials or including a handwritten note that makes the recipient feel valued.
The holidays generally aren’t the time to send items emblazoned with the company’s logo. A true thank-you shouldn’t serve the dual purpose of advertising for your company. Save the company mugs and key chains for trade shows or golf outings that occur earlier in the year.
Timely. In general, holiday gifts should be sent in the first two weeks of December, in case the company shuts down during the week of Christmas or the individual recipient goes on a family vacation. Remember that most gifts take a month or longer for the vendor to manufacture, customize and ship. Allow extra time if you plan to deliver items personally or include handwritten notes.
If you’re short on time and money, consider sending electronic messages or gifts. This option also saves on postage. In conjunction with e-cards, some companies also send a money-saving coupon or notification about a charitable donation to the customer’s preferred charity.
If you’ve procrastinated too long, consider sending a New Year’s gift to offer your gratitude for their business in 2014 and best wishes for a prosperous 2015.
Getting the Most from Year End Giving
Brainstorming thoughtful holiday gifts take time and effort. But they also provide an opportunity for your business to stand out from competitors. A well-thought-out holiday gift can be a cost-effective way to promote your brand, create a buzz and encourage customers to continue doing business with you in 2015.
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Brought to you by: McClanathan, Burg & Associates, LLC