Making gifts to promote your business is complicated by time, inflation, and poor tax legislation.

For example, a client recently brought this up: “To stay in touch and promote my business, I buy dozens and dozens of Starbucks $5 gift cards and send them monthly to my prospects and referral sources. Can I write off the $5 cards?”

You’ve probably heard the expression “between a rock and a hard place.” That’s where this client’s Starbucks gift cards fall. The law is going to treat her $5 Starbucks cards as business gifts.

Thus, if she gives a card to a referral source every month, her cost is $60 for the year ($5 x 12), but she may not deduct more than $25 for business gifts made to the same person. Ouch!

There’s a ridiculous $4 exception to the gift rules. The law exempts from the business gift rules and calls it advertising when you give to a customer or a prospect an item

• that costs you $4 or less,
• on which you have your name clearly and permanently imprinted, and
• that is one of a number of identical items distributed generally by you.

Here’s why this is ridiculous: The $4 rule was enacted in 1962, many years before Starbucks came into being. Further, if you applied the consumer price index calculator to that $4 amount, it would inflate to $39 today. The $25 total gift amount inflates to $241.

If you have questions about the gift rule, please don’t hesitate to contact me at kjohnson@proactbookkeeping.com

Sincerely,