No, gift cards and gift certificates don't count as a tax-deductible expense, even if you give them to a customer. In addition, any cash (or cash equivalents) counts as taxable income for the beneficiary. Sending Christmas gifts to customers or customers is considered a tax-deductible expense, but there is a limit to how much you can deduct. According to the IRS, a de minimis supplemental benefit is a gift “for which, considering its value and the frequency with which it is provided, is so small that it makes its accounting unreasonable and impractical.
When you record employee gifts on your books, if the gift should be included in the employee's taxable compensation, post it to the same account where you would record your salary, salary, or bonuses. If the gift is actually taxable for an employee, they will need to withhold payroll taxes, pay their share of payroll taxes, and report the additional income to the IRS. If your donation is sent to an entire company, such as a fruit or snack basket that is sent to a customer or partner organization, the company-wide donation will be considered deductible in any amount, as long as it is reasonable. A gift can be given on holidays, birthdays, after closing a sale or at any other time as a simple thank you.
If the gift is not taxable for the employee, the gift must be reasonable in order to deduct it as a business expense. It is recommended to indicate the nature of the business purpose on the gift receipt or as a note in your accounting software. The agent attaches a note with the gift requesting future business and references, accompanied by three business cards. Whether it's a gift to thank you for being a valued customer or for a vacation, the good news is that customer gifts are tax-deductible, but they have limits.
Gifts that are specific to meals or entertainment, such as gift certificates for a restaurant or tickets to a sporting event, even if you are not accompanying the customer, are only 50% deductible and should be reflected as meals and entertainment in your accounts. Under current law, entertainment expenses are normally 50% deductible, so the gift deduction is a better option for lower-priced tickets. It would be a shame if your careful donation ended up costing you and your employees an unexpected tax expense. A common practice among certain types of business professionals is to give a gift when a transaction is closed or a transaction is completed.
The amount of the donation must be reasonable and proportional to the nature of the business relationship. These gifts are minimal and may include Christmas gifts, fruit baskets, tickets to occasional events, flowers, fruits, etc.
