The Tax Implications of Giving Independent Contractors Gifts
- If the gifts you give to contractors are at or around $25 per recipient, then you can deduct the amount from your tax filing. If your gift was above this limit, then you can deduct the $25 limit, but the amount above that is not tax deductible. Inexpensive promotional items like printed pens don’t count as a business gift.
- Tickets to a show or sporting event are also considered a deductible business gift or entertainment expense, depending on how the tickets are given. For instance, a ticket given to a contractor for his enjoyment is considered a gift deduction, providing only the $25 limit is deducted, but if the ticket is given to the contractor and the owner accompanies him to the event, this is considered an entertainment expense, and 50% of the entire evening’s entertainment can be taken under this category.
- Gifts of any price that are given with your company brand, name or logo on them are considered promotional gifts, and also can be deducted, but under a different category. As these are used to promote your business, they are not constrained by the $25 business gift limit and can be of any value, but they must be accounted for as a promotion and advertising deduction, not a gift deduction.
- Ultimately the way you deduct a gift is determined by its reasonableness. If a gift is expensive and only branded with your name or logo so it can be deducted, but is not of any real advertising potential, then it may not be in your best interest to list it as an advertising deduction. If audited, this type of deduction may be eliminated, causing more of a tax liability for you.