In regards to gifts, generally, there’s a limit of $25 given to each person during your tax year. A gift to a customer’s family member is considered to be an indirect gift to that customer, unless you have a separate independent business connection with that person.
You and your spouse are treated as one taxpayer. So even if you run separate businesses, gifts given by either of you are treated as having been given by one taxpayer.
Incidental costs (such as packaging or mailing) that do not add value to the item are not included in the determining the cost of the gift for the purposes of the $25 limit.
Items that cost less than $4, that have your name engraved permanently on them, and are regularly handed out (such as pens or other desktop items) are not considered gifts. Neither are promotional materials (such as display cases) considered gifts.
An item that can be considered a gift or “entertainment” is usually considered entertainment. Packaged food to be consumed at a later date is treated as a gift. Tickets to a theater performance or sporting event which you do not attend with the customer can be treated as either a gift or entertainment, and you can change that treatment later by filing an amended return if you desire. If you go with the customer to the event, however, you must treat the cost of the tickets as an entertainment expense, not a gift.
Donations your business makes to a qualified charity (such as houses of worship or government agencies) can be deducted on your tax return. Most organizations will be able to tell you if they qualify. The deduction is made the year the donation is made, even if the check clears or the credit card bill is paid the following year.
For deductions regarding the donation of any amount of money, a taxpayer must have proper documentation. This can be a bank record such as a cancelled check or credit card or bank statement, or a written communication from the charity. The record(s) should show the name of the charity and the date and amount of the donation.
For donations of less than $250, you will need only your own documentation. For donations of at least $250 but not more than $500, you will need a written acknowledgement from the charity at the time of the donation. This statement must include the name of the charity, a description of the donation, and the fair market value of the item(s) less any goods or services given in exchange.
Donations other than cash (such as furniture and electronics) must be in good condition or better to be deductible. If you include a qualified appraisal with your tax return, however, donations for which you are claiming a deduction of more than $500 do not have to meet this standard.
For a donation of items having a value of more than $500, you will need to attach a Form 8283 (Noncash Charitable Contributions) to your tax return.
If you claim a deduction of more than $500 for the donation of a vehicle, you will need to attach the following documents to your tax return:
- Copy B of Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes);
- Section A of Form 8283 (Noncash Charitable Contributions);
- A written acknowledgment from the charity that includes your name and taxpayer identification number, the vehicle identification number, the donation date, and a an estimate of the fair market value of goods or services you received from the charity in exchange for the donation (if any).
If you claim a deduction of more than $5,000 for the car or other donation, you will need to complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser, instead of Section A.
It is necessary to obtain and keep evidence of your car or other donation and be able to substantiate its fair market value. Generally the amount you can deduct is equal to the gross proceeds of the sale of the item instead of the fair market value. For donations with a value of over $5000, you will need a written acknowledgment by a qualified appraiser. Do not attach this evidence or any appraisals to your tax return; keep them with your records to substantiate all of your donations.
This information and more can be found at www.irs.gov in Publication 463 (Travel, Entertainment, Gift, and Car Expenses) and Publication 526 (Charitable Contributions).