Are corporate gifts taxes deductible?
Almost everyone loves gifts, both giving and receiving them. And most of the time, gifts and taxes don't even overlap too much. But in some cases they do, which often leads to the question of whether any corporate gifts are tax-deductible.
While you are safe most of the time, it is essential to understand when you need to pay taxes on gifts that are received or may receive a tax break when you give them to someone else.
This article breaks down the guidelines about taxable gifts which include the gifts that are tax-deductible and tax-exempt.
Tax Deductible Gifts vs. Tax-Exempt Gifts
There's a difference between tax-deductible and tax-exempt.
There are different kinds of gifts that are exempt from the mandatory gift tax, which includes the gifts to your spouse, gifts to political organizations, paying for another person's medical or educational costs, or any other gifts that fall within the annual exemption value of AED 15000 per recipient.
So, there is probably no need to worry about having to pay a gift tax on your family Christmas presents. But tax-deductible is different. Gifts, in general, are not tax-deductible. Moreover, there are only two kinds of gifts that may even get deducted on a tax return: corporate gifts or charitable donations.
Let's look quickly at each of those:
Charitable donations are pretty much exactly what they sound like: gifts you give to a not for profit organization to help them to fulfil their mission. Any gifts you make to a charity are tax-deductible if the charity clarifies to allow that to happen. A charity must be a registered 501 (c)3 entity in good standing for the donations to get considered tax-deductible.
Corporate gifts are either gifts that your business pays for or gifts that you give on behalf of your business and some of them can be tax deductible up to a point, depending on how you handle and report them.
Here are a few examples of gifts that would qualify as examples of corporate gifts:
- Promotional gifts such as T-shirts, keychain, Frisbees, pens, etc are tax-deductible as long as they have your company name printed on them, cost less than AED 4 apiece, and are distributed widely.
- Entertaining gifts such as concert ticket, trips, and meals can be considered business expenses and are tax-deductible around 50% of their value.
- All other gifts are tax-deductible to around AED 25 per participant per year. A gift to a person spouse usually counts as a gift to that person.
The first step is to determine what type of gifts you are giving or receiving and if it qualifies for a tax-exempt gift or tax-deductible gift.
How Much Is the Gift Tax?
A gift tax is something that gets imposes by the IRS when you transfer money or property to another individual. Examples of a gift tax include the parents gifting money to their children or passing down a vehicle to a teen driver who recently got their license.
Whether or not a 'gift tax' applies to the dependent is based on a few factors. First, the amount of the gift needs to remain below the gift tax exclusion, which is around AED 15000 for 2020. There is also lifetime exclusion applicable to a few wealthy individuals that sit at AED 11.58 billion.
In nearly every circumstance, the donor of a gift is responsible for taxes, not the recipient. Moreover, if the donor even remains under the annual lifetime threshold, a gift tax is not imposed.
Once the gift exceeds the annual or lifetime exclusion, then the donor needs to file the tax forms that disclose the amounts of the gifts. The IRS turns it around by taxing you on the value of the gifts, with pricey rates that range anywhere from 18-40%.