Despite the IRS reputation as hard-nosed realists, when it comes to deductions for business purposes, business gifts are often an allowable deduction. As is true with almost anything having to do with the Internal Revenue Code (IRC), there are numerous qualifications. But you don't want to miss out on a perfectly legal deduction, so let's take a look!
First of all, like all deductions of a business nature, there must be a demonstrable business connection. So a gift to your agent would be deductible because there is a clear connection to your agent being able to advance your career. But a gift to your Aunt Mabel's next door neighbor, "Flo", because her nephew is a casting director in Auckland, New Zealand, obviously doesn't pass the test - - - however happy it might make good old "Flo".
And there is one key rule for business gifts, a rule I call "Rule of 25-to-One-to-One". Simply put, that rule means you may deduct a gift valued up to $25.00, to one person, one time a year.
That imposes some definable limitations. If you graciously send your agent or manager flowers every time she gets you an audition, that probably enhances your career--but nonetheless, once you get past $25.00, you're on your own, without any deductible expense. Or, let's say you get that ultimate boon of our biz - - a series regular slot on a hit episodic show. To show your manager how much you appreciate him, you give him a case of his favorite 1998 French Champagne, which sets you back a couple of grand. Again, maybe a smart business move (and you can afford it!), but the first $25.00 is the only deduction allowable.
Since these business gifts cost less than $75.00, they are deductible even if you don't have a written receipt, so long as you have made an appropriate notation in your business log. But if you are giving $25.00 gifts to a lot of people--say ten or more--I would recommend that you keep the receipts. Keeping all receipts, regardless of amount, is a commendable practice anyway.
Of course, business meals and entertainment (which is a whole additional subject) don't count as business gifts, and are not subject to the $25.00 limitation.
So be an appropriate donor of business gifts whenever it can benefit your career--but bear in mind the "Rule of 25-to-One-to-One", and the gift you'll give yourself is to avoid any conflicts with the IRS.
ABOUT DAVID ROGERS
David Rogers, Managing Partner, of Actors Tax Prep is a former senior advertising executive. He has been an actor since 1992, and is a long-time member of SAG-AFTRA and AEA. A graduate of Princeton University, he is registered with CTEC and is a member of the National Association of Tax Professionals and the National Society of Accountants. David lectures frequently on entertainment tax issues throughout the United States.
Actors Tax Prep is a tax preparation firm specializing in the entertainment business. Headquartered in Los Angeles, the company represents hundreds of clients who are spread over some twenty-seven states. In business since 1990, the company and all its preparers are fully bonded, insured, licensed and registered with the California Tax Education Council.
For more information visit ActorsTaxPrep.com