Giving gifts to your clients can establish good relationships, but they may provide another benefit as well. Lots of realtors check their expenses to see what can be written off. Therefore, this brings us to a commonly asked question: Are closing gifts for real estate tax deductible?
The answer is – yes, they are deductible, but limited as well. However, Let’s take a look at the limits imposed by the IRS (Internal Revenue Service) and how it affects tax reductibility.
The $25 Tax Deductible limit
This rule states that if you give someone a business gift, your deduction is limited to $25 per single person, per year. Any amount exceeding $25 is not deductible.
A gift given to a member of the client’s family is also considered a gift to the client. This would be true unless you have non-business connections with that family member. The $25 limit applies to individuals only, it does not work for companies or group settings.
When giving gifts to an entire company, they are deductible in any amount, as long as they are still reasonable. However, this rule doesn’t apply if the gifts are intended for a particular person or group.
In other words, If you were to give a gift intended for everyone in the company to enjoy, the $25 limit won’t be applied and full deductions will be made as long as they are still fair and reasonable.
The $25 rule won’t be applied to low-cost gifts when they cost $4 or less, they are generic items you distribute widely, and if they have your company name in them. For instance, Pens with company names printed on them are examples of these.
Promotional and marketing items are fully deductible as long as it is branded. However, if the gift doesn’t have obvious and visible marketing, it is not considered deductible.
The IRS strongly recommends keeping and organizing records and receipts to ensure that deductions are made properly. In addition, another good recommendation is to also list the specifics such as shipping, tax, and gift wraps to maximize any possible deductions.
To be more specific, these specific records must be shown for your deduction to have higher chances of being considered:
- Name of the recipient
- The date the gift was given
- The type of gift given
- The business purpose
- The cost of the gift
In conclusion, Are closing gifts for real estate tax deductible? Yes, but it is limited by strict rules implemented by the Internal Revenue Service. You need to consider these restrictions when it comes to giving business gifts. Lastly, it is advised to always keep thorough records of your gifts for them to be better considered.