The Basics of B2B Gift-Giving
Gifts are common in the business environment. Gestures of appreciation, gifts help businesses strengthen relationships, connect with clients and stay top-of-mind with prospective customers. However, from a corporate perspective, gift-giving can be complicated. Although a gift is generally defined as an item voluntarily provided without legal or moral obligation or expectation of compensation, how the gift may be perceived by the recipient or others, tax implications, and legal ramifications are all aspects that should be considered before presenting a gift to a business associate.
Business to Business Gifts
The Internal Revenue Service (IRS) allows businesses to deduct an annual maximum of $25.00 per recipient for business gifts. If the gift is valued higher than $25.00, only the allowable deduction of $25.00 per person may be taken on the business’ tax return. Spouses or business partners are considered one taxpayer. If each spouse or partner, separately or combined, gives a gift to the same business associate, only one deduction of up to $25.00 is allowed. Incidental costs, including shipping, gift wrapping, greeting cards, etc., are not included when determining the cost of the gift for the tax deduction limit.
For the purposes of the $25.00 limit, the IRS does not consider a widely distributed item of less than a $4.00 value that has the business name permanently imprinted on it to be a gift. Promotional items like pens, notepads and tote bags would fit into this exception.
Business gifts that are also entertainment may or may not be considered a gift, depending on the circumstances. Essentially, if the gift-giver does not attend the event with the associate, the business can choose to treat the expense as a gift or entertainment. However, if the giver attends the event, the cost must be treated as an entertainment expense.
It is equally important in a business environment to ensure that the gift given is appropriate and reflects the nature of the relationship. Some companies have policies limiting the value of any gift their employees can accept and others prohibit employees accepting gifts altogether. Businesses that have relationships with government agencies need to be cautious about sending gifts to government employees as it may be illegal to present the gift and/or for the recipient to accept it. Gifts should never be given during a bidding process, even if it occurs during an event such as winter holidays or the recipient’s birthday, neither should gifts be presented before, during or immediately following offer or contract negotiations.
It is a best practice to create a well-defined company policy about gifts, including the rules and/or limitations on receiving gifts as well as guidelines for gift-giving. Be certain to consult with the company’s accounting advisors when creating, implementing and maintaining the policy. Ensure that everyone in the organization understands and follows the policy. Clearly communicated rules around corporate gift-giving will help maintain the credibility of the business, avoid possible conflicts of interest and make giving and receiving gifts in the business environment a positive experience for all.