What expense category do client gifts fall under?

Wondering which expense category your client gifts should fall under? Properly categorizing these gifts keeps your financial records accurate and ensures you stay on top of tax regulations.

Classifying client gift expenses

The way you categorize client gifts depends largely on their intent and how they align with your business operations.

• Advertising and promotion: Gifts given as part of marketing efforts to promote your company.
• Entertainment: Gifts given during social events to build relationships.
• Travel and expense (T&E): Gifts associated with business travel.

Examples of client gift expenses

Client gifts can serve various purposes, from strengthening relationships to promoting your brand. Here are some examples to help you better understand how to classify them:

• Branded items at a conference: Handing out custom mugs with your logo at a trade show can be categorized under advertising and promotion.
• Dinner appreciation gift: Giving a gift card as a thank-you during a business dinner is classified under entertainment.
• Travel souvenirs: Presenting a local specialty to a client during a business trip falls under travel and expense.

Let’s take a look at a real-life scenario: a $30 gift basket given to a client after closing a deal. Since the IRS allows you to deduct up to $25 per person, per year for business gifts, you can deduct $25 of this expense under client gifts.

Tax implications of client gift expenses

When it comes to taxes, here's what you need to know about client gifts:

• Deduction limit: You can deduct up to $25 per person, per year for business gifts. Incidental costs like engraving or shipping aren't included in this limit.
• Advertising exception: Branded promotional items of nominal value that are widely distributed may be fully deductible under advertising expenses.

Be sure to keep detailed records of each gift, including the recipient's name, the gift's cost, date, and business purpose. Also, always consult IRS guidelines or a tax professional to make sure you're following the rules.

Let Ramp automate your expense process

Managing client gift expenses doesn't have to be complicated. Ramp automates expense tracking, making sure your client gifts are properly categorized and compliant with tax regulations. Spend less time on paperwork and more time building great client relationships with Ramp.