There have been lots of people that have helped me out to get me up to where I am. I’d really like to show them my appreciation somehow. I thought that I could easily take them all out to lunch/dinner and we could all discuss future real-estate posibilities. On top of that, I thought it would be nice to give the some gift cards like Home Depot gift cards to the rehabbers, etc. I plan on doing this out of my S-corporation, so how can I deduct those gift cards on taxes? Could it count as entertaining clients? Clients in that I am making them aware of my services hoping that we can partner and colaborate on future deals. Any other ideas/suggestions on how to reward those that have helped along the way and take it as a tax deduction at the same time? Thanks.
For future reference, IRS Publication 463 is the primary resource.
It looks like I can deduct 50% of the lunch expenses I was planning. That’s cool. This should easily qualify, because I know we’re all going to talk real-estate and bounce ideas and opportunities around for the whole hour.
Under gifts, this was interesting: "If you give a customer tickets … and you do not go … you can treat the cost as either gift expense or entertainment expense, whichever is to your advantage. Most IRS things are not to my advantage, so I like this one that is. :beer
Now, how am I to treat a restaurant, Best Buy, Home Depot, etc. gift card? Could these qualify as “tickets”? To Best Buy, Lowe’s etc? I most likely won’t be going with the client to this “event”. For gift expense, I can only get $25 deduction. I was planning on giving $100 gift cards. I do have a clear business purpose in giving the gift cards in that I consulted with all the people involved for at least an hour of brainstorming to make a deal successful. As a side bonus, it will encourage future business associations of goodwill. If the gift card qualifies as a “ticket”, I can deduct the entire face value. mutter I wish the IRS used another example as opposed to just tickets. There are several items that I think we all could count as “tickets”. How about paying for tee time at a golf course, for example.
If I structure the deduction for my advantage, it is seeming to fall under entertainment expenses. Entertainment is “any activity generally considered to provide entertainment, amusement, or recreation”. The people receiving these gift cards will obviously get entertainment, recreation and possibly amusement by their shopping and spending the gift cards on what they would enjoy. Also, I figure that Home Depot and Best Buy should apply to real-estate business: Home Depot obviously for rehabbers; Best Buy for gadgets like cell phones, digital cameras and electronic planners to enhance one’s business productivity in real-estate. Since its not a specific item, but could be anything in the store, I’m wanting to say that it isn’t a specific gift since the receiver will get to use it entirely up to their “entertainment, amusement, or recreation”. Did I understand, more or less, correctly?
Also, as mcwagner pointed out, one of my major points in this luncheon celebration is to point out to fellow colleagues that I can successfully complete real-estate deals. Marketing expense sounds like a good way to go.
Now, I’m thinking here. How about if I give them two gift cards? A $25 one and a $75 dollar one? For the $25, it is direct gift expense and I can deduct the entire thing. Then, the other $75 can fall under entertainment and I can take 50% of that.
Ok, someone tell me if my S-corp just got audited. Hahaha! :biggrin
dr_white,
I give out Starbucks Cards ($10.00) sometimes to tenants who have had problems with their units. It is sugar, an apology. We write that off under marketing. Our CPA seemed to think that was fine.
Also meals can be written off 100% if you purchase food for your workers. Sometimes we are working under a deadline (someone is moving in tomorrow!)so I spring for pizza, or enchiladas or something.
That is different than the 50% business lunch expense. Again this is per the CPA.
you are marketing your business by giving gift cards. it’s always 100% deductible regardless of how much $ is on the cards. no different than if you paid them a finders fee after the fact. it’s all deductible all the time.
meals and entertainment are when you take out and entertain clients or potential clients to get business.
note that this is different from a meal you buy at the local networking breakfast for yourself. this is marketing and is 100% deductible; you are not “entertaining” anyone. If you buy breakfast for the guy next to you, then you are entertaining him, and should deduct only 50% of that meal (but who is going to know?)
You can deduct up to 50% of entertainment costs, or gift costs up to $25 each. Generally, an item that is considered a gift is also considered to be an entertainment expense. If you give an item that is intended to be used at a later date (like tickets to a performance or event), it is usually considered a gift.
Sometimes you will have the option of deducting those costs as a gift or entertainment expense, depending on the circumstances.
FOR EXAMPLE- If You Go With Them, Treat the cost as an entertainment expense, do not deduct as a gift expense.
If You DON’T Go With Them, Treat the cost as a gift or entertainment expense, whichever is more advantageous.
FOR EXAMPLE, you buy some event tickets for a client.
If tickets cost $40, you’d rather treat it as a gift cost so you could deduct $25. If you deducted it as an entertainment expense, you could only deduct $20.
If the tickets cost $100, you’d rather treat it as an entertainment expense so you can deduct $50. If you deducted it as a gift cost, you could only deduct $25.