June --
I've been a sole proprietor for 25 years. I am being audited for the second time (in 25 years). I searched Ask.com for "Are gift baskets tax deductible?". As I prepare for this audit I am starting to doubt basic write-offs I have taken primarily because of all the research I am doing.
I got to wondering if a gift basket comprised of food would somehow fall under meals and entertainment.
Thanks for the information.
Janice
Orange , Ca
Dear Janice,
Regardless of the cost of the gift basket your deduction is limited to $25 . And that is the total you may deduct as a gift for a business associate for the entire year.
Were you to purchase the gift basket and take it with you as your meal while on a picnic with your associate and you discuss business before, during or after the picnic meal then you could deduct the basket as a meals & entertainment expense.
Here's an example of the difference in deductions:
You purchase two $150 gift baskets for a client during the year.
Your cost: $300.
Your deduction: $25
You have two $150 business dinners with your client during the year.
Your cost: $300.
Your deduction: $150. [50% of $300]
-- June
Showing posts with label expenses -- business gifts. Show all posts
Showing posts with label expenses -- business gifts. Show all posts
Thursday, December 17, 2009
Monday, November 16, 2009
Income & Gifts
Hi June!
Graphic Designer ... 3 years.
I'm in the process of reading your book, Self-employed Tax Solutions, fabulous resource!
I have a question for you. I have a restaurant client that has wonderful food, around the holidays I typically will ask them for a few gift cards and sometimes food for my clients. I write that amount off of their invoice for the month but I'm not sure how to take advantage of the gift deduction.
Hoping I wouldn't have to bill them as normal and then pay them for the above items. Is there an easier way?
Also, I just returned home from a week stay at Disney World. I saved all of my receipts while I was there with my husband. Would it be possible to deduct my portion of the trip if it was for creative renewal/inspiration?
Thank you so much for breaking this all down to bite size pieces of information. You're the best!
Sincerely,
Kristen
Midlothian, VA
Hi Kristen,
I am so pleased you're using my book as a resource. Resource and reference for indies was my intention.
Think of your restaurant/gift situation this way...
Kate's Cafe owes you $1000.
Were Kate to pay you you $1000 in money you'd have $1000 income.
Were you then to give Kate a $200 check for gift cards -- and here it gets a little tricky -- here's how it would work.
You would get to deduct as a business expense $25 per business associate to whom you gave the gift cards. [That's per year. Yes, $25 per year, per associate.]
If you gave $25 gift cards to 8 people, you get a $200 business deduction.
A $200 gift card to one person would get you only a $25 deduction .
Deduction categories in your recordkeeping would look like this:
Business Gift .................. $ 25
Business Gift Excess .... $175
Or ...
Kate pays you $800 and gives you $200 worth of gift cards.
Your income is still $1000.
Your deductions would be the same as above.
You do not have to exchange checks with Kate but you must keep the records on the income and expenses.
BTW -- Kate would have a $1000 expense if she paid you in money and gift cards. A little less were she to pay you in money and food.
On Disney: Can't deduct inspiration.
Best,
June
Graphic Designer ... 3 years.
I'm in the process of reading your book, Self-employed Tax Solutions, fabulous resource!
I have a question for you. I have a restaurant client that has wonderful food, around the holidays I typically will ask them for a few gift cards and sometimes food for my clients. I write that amount off of their invoice for the month but I'm not sure how to take advantage of the gift deduction.
Hoping I wouldn't have to bill them as normal and then pay them for the above items. Is there an easier way?
Also, I just returned home from a week stay at Disney World. I saved all of my receipts while I was there with my husband. Would it be possible to deduct my portion of the trip if it was for creative renewal/inspiration?
Thank you so much for breaking this all down to bite size pieces of information. You're the best!
Sincerely,
Kristen
Midlothian, VA
Hi Kristen,
I am so pleased you're using my book as a resource. Resource and reference for indies was my intention.
Think of your restaurant/gift situation this way...
Kate's Cafe owes you $1000.
Were Kate to pay you you $1000 in money you'd have $1000 income.
Were you then to give Kate a $200 check for gift cards -- and here it gets a little tricky -- here's how it would work.
You would get to deduct as a business expense $25 per business associate to whom you gave the gift cards. [That's per year. Yes, $25 per year, per associate.]
If you gave $25 gift cards to 8 people, you get a $200 business deduction.
A $200 gift card to one person would get you only a $25 deduction .
Deduction categories in your recordkeeping would look like this:
Business Gift .................. $ 25
Business Gift Excess .... $175
Or ...
Kate pays you $800 and gives you $200 worth of gift cards.
Your income is still $1000.
Your deductions would be the same as above.
You do not have to exchange checks with Kate but you must keep the records on the income and expenses.
BTW -- Kate would have a $1000 expense if she paid you in money and gift cards. A little less were she to pay you in money and food.
On Disney: Can't deduct inspiration.
Best,
June
Thursday, February 12, 2009
Another Pianist's Dad
Hi June,
Helpful site!
I was lead here looking at what the valid deductions would be for self employment in the case of my son. He plays piano for Sunday School each week for the past 3 years and this year the church decided to start paying him $100/month. He has been taking piano lessons for the past 10 years and is very proficient.
Is it legit to deduct as his expenses items that technically were paid by his mother and me (like piano lessons and tuning and music)? Do we need to have him start paying for these expenses himself and just "gift" him money to cover these items?
Thanks,
Cliff
Dear Cliff,
Glad to know my site is helpful. Thanks for letting me know.
In order to give you an in-depth answer I'd need a lot more info. Such as: How old is your son? Do you claim him as an exemption on your tax return? Is he doing this to make money or is this volunteer work that turned into a paying gig?
Here's a general answer that may help you. If money is gifted to someone with no strings attached then that someone may use the money however he or she wishes. If the money is spent on a deductible business expense then the deduction may be taken on the someone's tax return.
Best,
June
Helpful site!
I was lead here looking at what the valid deductions would be for self employment in the case of my son. He plays piano for Sunday School each week for the past 3 years and this year the church decided to start paying him $100/month. He has been taking piano lessons for the past 10 years and is very proficient.
Is it legit to deduct as his expenses items that technically were paid by his mother and me (like piano lessons and tuning and music)? Do we need to have him start paying for these expenses himself and just "gift" him money to cover these items?
Thanks,
Cliff
Dear Cliff,
Glad to know my site is helpful. Thanks for letting me know.
In order to give you an in-depth answer I'd need a lot more info. Such as: How old is your son? Do you claim him as an exemption on your tax return? Is he doing this to make money or is this volunteer work that turned into a paying gig?
Here's a general answer that may help you. If money is gifted to someone with no strings attached then that someone may use the money however he or she wishes. If the money is spent on a deductible business expense then the deduction may be taken on the someone's tax return.
Best,
June
Saturday, May 24, 2008
Business Gifts Given
Hi June,
My husband is an Orthopedic Surgeon and works in Indianapolis. He never itemizes business gift write-offs. We have referring physicians who he speaks to throughout the year who are critical to referring heavily to his practice as a specialist. I know he is not comfortable giving a small 25$ gift certificate (and that is the number I heave read) and he spends literally thousands on stuff once a year at the holidays. I think he should and that's great!
Then I said, maybe he should purchase on his business credit card, 20 gift certificates from 100 - 250 dollars. That got us talking yet again about writing these business thank you gifts off our taxes. I wonder if this seems appropriate? It does top me.
Our tax person is very conservative I think. I couldn't care less if we get audited other than the headache. Thoughts?
Thanks
Sue
Hi Sue,
There is no limit on the amount you may spend on a gift for a business associate. The limit is on the amount you may deduct as a business expense. And that amount s $25 per business associate per year.
A more interesting element of your question is that you think it might be different were you to put the expense on a business credit card. There is a lot of misunderstanding about business checking accounts and credit cards. Just because an expense is paid through a business account does not make it a business expense.
I say in my book, Self-employed Tax Solutions that as long as your records are accurate one checking account is perfectly acceptable to the IRS. I think one big factor in the insistence on a business checking account is that it’s supposed to cover up financial shenanigans. Many people like to believe that because something is paid by a business check that makes it a business deduction. Of course, that is not so! The attaché case for your daughter's twentieth birthday, even though purchased with your business check, is not a business expense. But the flowers, paid from your personal account, given to your mother as thanks for typing your business plan, is a business expense.
Best,
June
My husband is an Orthopedic Surgeon and works in Indianapolis. He never itemizes business gift write-offs. We have referring physicians who he speaks to throughout the year who are critical to referring heavily to his practice as a specialist. I know he is not comfortable giving a small 25$ gift certificate (and that is the number I heave read) and he spends literally thousands on stuff once a year at the holidays. I think he should and that's great!
Then I said, maybe he should purchase on his business credit card, 20 gift certificates from 100 - 250 dollars. That got us talking yet again about writing these business thank you gifts off our taxes. I wonder if this seems appropriate? It does top me.
Our tax person is very conservative I think. I couldn't care less if we get audited other than the headache. Thoughts?
Thanks
Sue
Hi Sue,
There is no limit on the amount you may spend on a gift for a business associate. The limit is on the amount you may deduct as a business expense. And that amount s $25 per business associate per year.
A more interesting element of your question is that you think it might be different were you to put the expense on a business credit card. There is a lot of misunderstanding about business checking accounts and credit cards. Just because an expense is paid through a business account does not make it a business expense.
I say in my book, Self-employed Tax Solutions that as long as your records are accurate one checking account is perfectly acceptable to the IRS. I think one big factor in the insistence on a business checking account is that it’s supposed to cover up financial shenanigans. Many people like to believe that because something is paid by a business check that makes it a business deduction. Of course, that is not so! The attaché case for your daughter's twentieth birthday, even though purchased with your business check, is not a business expense. But the flowers, paid from your personal account, given to your mother as thanks for typing your business plan, is a business expense.
Best,
June
Saturday, December 1, 2007
10 Tax-saving Tips for Writers
Attention writers.
All you freelancers, whether your income skyrockets in the 100s of thousands of dollars or you’re closer to $500 per year, Uncle Sam treats you all the same.
That’s right, amount of income earned by a writer carries no weight with the IRS. You all must follow the same rules. The most horrendous audit I've ever handled was that of an established poet who earned less than $5,000 that year.
I've put together 10 time-and-tax-saving tips on how to simplify complex IRS rules to fit your writing style. All stem from questions you have asked me or areas where I know you need help. A while back I presented a similar set of tips to designers -- Designers Dozen: Tax Saving Tips for the Graphic Artist .
1. Use two offices. Forget the old husband’s tale that home office or studio is an audit red flag. The IRS has lightened up on this. Even if you work out of two or three places, if used exclusively for your work they are all legitimate deductions. Yes, both your home office and the spare room at your country place where you do your three-hour morning blogging routine every weekend are deductible business expenses.
2. Work at home to increase your business transportation deduction. If you do most of your research and writing at a local Internet café or college library or rented office you may still deduct costs for the area of your home used exclusively and regularly for your business, no matter how small the area. And by having two work places you’ll increase your deduction for auto use or public transportation costs.
Here’s why: The IRS does not allow a deduction for commuting from home to work and back. But it does allow a deduction for getting from one workplace to another. If you work in your home office and then drive to your other workplace – the library -- you are now driving “from one workplace to another.” You've increased your business miles and the amount of your auto deduction, or made your subway trip a business expense.
3. Careful, no office sharing allowed. Keep in mind the all-important IRS exclusive use rule: that your office must be yours and yours only. If you’re the writer for Clyde Client and your spouse handles the graphic design side of Clyde’s website and both you and your spouse use the same office – sorry, no home office deduction.
The way around that: make one spouse the employee of the other. By the way – there are a whole lot more benefits to hiring your spouse.
4. Hire your spouse. Even if your honey only helps you out with printer jams or errand running or fact checking, pay him for it. Putting him on your payroll opens up a vast array of deductions. You can provide generous employee benefits and deduct the costs of those benefits from your writing income. What kind of benefits? Well, for one thing, you can give him a medical plan that covers his family – that’s you and the kids. That would make your doctor bill a deductible business expense.
5. The more broadly defined your business the more deductions you can take. Being a sports writer limits your deductions. Same with calling yourself a technical writer. Yet we know if the money were there you’d write about pretty much anything.
Maybe you can position yourself as a generalist writer; in any case, describe your field of writing as broadly as you comfortably can. Do you sell ads on your blog? Do you sell a copywriting course on your website? Do you write for blogs and edit press releases for local businesses, all while working on your book? Perhaps your true business profession is a writing and marketing consultant rather than a writer.
Whatever your profession, claim all the income --- every dime. Consider as a possible business expense everything you do that makes you better at making money.
6. Why do you watch TV, rent DVDs, see a movie? If it’s just for fun, no tax deduction. However, if seeing films is vital to your own screenwriting or your novel in progress then claim a portion of the costs as a tax deduction. Or, has the literary void on network TV forced you to get cable? Well then, part of your monthly cable cost is a business deduction. And remember, the business use portion of the cost of your TV and DVD player is also a business expense.
7. Are you allowed to deduct a gift basket of fruit to Grandma? Of course you are -- if Gram has some connection to your business. Did she show you how to hook up your scanner? Make curtains for your office?
You’re an indie business and even though you may have a personal relationship with someone, that does not rule out also having a business relationship. This is particularly pertinent in gift-giving. Of course, if you bought your client a basket of fruit as a birthday present you would treat it as a business gift deduction. But what about the friends with whom you have a business connection? If dinner at a friend’s house was planned so that she could help you with your query letter or book proposal, then the chocolate you arrived with is a business gift.
8. Deduct your laundry and dry-cleaning. Spill ink or red wine on your white silk blouse while attending an awards event? Dry cleaning and laundry while on a business trip are deductible expenses. You may also deduct the costs of the first dry cleaning bill after you return home. But don’t get too creative and save all your winter’s dirty clothes for cleaning the day after you return from a 3-day writers’ workshop.
9. Just starting out? Twenty-five query letters out and still no magazine said yes. That’s a bummer, but even if you haven’t yet made your first dollar as a writer you may still deduct your expenses. As long as your goal is to make money, you’re in business – whether you actually make any money or not.
10. Discuss these ideas with your tax pro before incorporating them into your business. That’s the most important tip of all. If your tax pro isn't aware of them … time to get a new pro!
All you freelancers, whether your income skyrockets in the 100s of thousands of dollars or you’re closer to $500 per year, Uncle Sam treats you all the same.
That’s right, amount of income earned by a writer carries no weight with the IRS. You all must follow the same rules. The most horrendous audit I've ever handled was that of an established poet who earned less than $5,000 that year.
I've put together 10 time-and-tax-saving tips on how to simplify complex IRS rules to fit your writing style. All stem from questions you have asked me or areas where I know you need help. A while back I presented a similar set of tips to designers -- Designers Dozen: Tax Saving Tips for the Graphic Artist .
1. Use two offices. Forget the old husband’s tale that home office or studio is an audit red flag. The IRS has lightened up on this. Even if you work out of two or three places, if used exclusively for your work they are all legitimate deductions. Yes, both your home office and the spare room at your country place where you do your three-hour morning blogging routine every weekend are deductible business expenses.
2. Work at home to increase your business transportation deduction. If you do most of your research and writing at a local Internet café or college library or rented office you may still deduct costs for the area of your home used exclusively and regularly for your business, no matter how small the area. And by having two work places you’ll increase your deduction for auto use or public transportation costs.
Here’s why: The IRS does not allow a deduction for commuting from home to work and back. But it does allow a deduction for getting from one workplace to another. If you work in your home office and then drive to your other workplace – the library -- you are now driving “from one workplace to another.” You've increased your business miles and the amount of your auto deduction, or made your subway trip a business expense.
3. Careful, no office sharing allowed. Keep in mind the all-important IRS exclusive use rule: that your office must be yours and yours only. If you’re the writer for Clyde Client and your spouse handles the graphic design side of Clyde’s website and both you and your spouse use the same office – sorry, no home office deduction.
The way around that: make one spouse the employee of the other. By the way – there are a whole lot more benefits to hiring your spouse.
4. Hire your spouse. Even if your honey only helps you out with printer jams or errand running or fact checking, pay him for it. Putting him on your payroll opens up a vast array of deductions. You can provide generous employee benefits and deduct the costs of those benefits from your writing income. What kind of benefits? Well, for one thing, you can give him a medical plan that covers his family – that’s you and the kids. That would make your doctor bill a deductible business expense.
5. The more broadly defined your business the more deductions you can take. Being a sports writer limits your deductions. Same with calling yourself a technical writer. Yet we know if the money were there you’d write about pretty much anything.
Maybe you can position yourself as a generalist writer; in any case, describe your field of writing as broadly as you comfortably can. Do you sell ads on your blog? Do you sell a copywriting course on your website? Do you write for blogs and edit press releases for local businesses, all while working on your book? Perhaps your true business profession is a writing and marketing consultant rather than a writer.
Whatever your profession, claim all the income --- every dime. Consider as a possible business expense everything you do that makes you better at making money.
6. Why do you watch TV, rent DVDs, see a movie? If it’s just for fun, no tax deduction. However, if seeing films is vital to your own screenwriting or your novel in progress then claim a portion of the costs as a tax deduction. Or, has the literary void on network TV forced you to get cable? Well then, part of your monthly cable cost is a business deduction. And remember, the business use portion of the cost of your TV and DVD player is also a business expense.
7. Are you allowed to deduct a gift basket of fruit to Grandma? Of course you are -- if Gram has some connection to your business. Did she show you how to hook up your scanner? Make curtains for your office?
You’re an indie business and even though you may have a personal relationship with someone, that does not rule out also having a business relationship. This is particularly pertinent in gift-giving. Of course, if you bought your client a basket of fruit as a birthday present you would treat it as a business gift deduction. But what about the friends with whom you have a business connection? If dinner at a friend’s house was planned so that she could help you with your query letter or book proposal, then the chocolate you arrived with is a business gift.
8. Deduct your laundry and dry-cleaning. Spill ink or red wine on your white silk blouse while attending an awards event? Dry cleaning and laundry while on a business trip are deductible expenses. You may also deduct the costs of the first dry cleaning bill after you return home. But don’t get too creative and save all your winter’s dirty clothes for cleaning the day after you return from a 3-day writers’ workshop.
9. Just starting out? Twenty-five query letters out and still no magazine said yes. That’s a bummer, but even if you haven’t yet made your first dollar as a writer you may still deduct your expenses. As long as your goal is to make money, you’re in business – whether you actually make any money or not.
10. Discuss these ideas with your tax pro before incorporating them into your business. That’s the most important tip of all. If your tax pro isn't aware of them … time to get a new pro!
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