It’s Client Gifting Season! Everything Beauty Pros Need To Know About Deducting Client Gifts

It’s that time of year! Your clients have been so good to you and now it’s time to show them a little love with a gift from their favorite stylist. Here’s everything you need to know about deducting client gifts this holiday season. 

There’s a $25 Limit on Deducting Client Gifts

The IRS says that you can’t deduct any more than $25 for business gifts you give directly or indirectly to each person during your tax year. So, plain and simple, this doesn’t mean you can’t spend more than $25 dollars for your favorite client’s gift, it just means that you can only deduct the first $25. 

Let’s take this back to the salon for a real world scenario. Kristin is one of your regular balayage clients, is an introvert and loves neutrals. So you spot the most beautiful, softest you’ve ever felt, cream, throw blanket – it’s $45. Just because it’s more than $25  doesn’t mean you can’t get the blanket. It just means that you’ll be able to deduct $25 and the remaining $20 will not be able to be deducted on your taxes. If you’re okay with this splurge, great! If not, figure out how much you’re willing to go over or stick to the $25 limit to ensure each client gift is 100% deductible.

Extra Costs of Client Gift Giving

The IRS identifies incidental costs as packaging, insuring, and mailing. These items are generally not included in the $25 limit we just talked about. 

So what does this mean exactly? 

Well, a cost is only incidental if it doesn’t add lots of extra value to the gift, and we don’t mean sentimental value. Gift wrapping, for example, is an incidental cost because it’s only decorative to contain your gift and doesn’t increase the price by too much.

On the flip side, let’s say you bought your client some candles and decided to package them in a Kate Spade handbag. Clearly the cost of the handbag is way more than wrapping paper and likely even more than the gift inside. Now, that would increase the cost of your gift substantially! In this scenario, the handbag would count towards the $25 limit.

So go crazy with the cutest wrapping paper, adorable cards, and fluffy tissue paper knowing that it’s fully deductible. As every beauty pro knows, it’s all about the presentation!

What’s the Difference Between Gifts and Marketing

Let’s be honest for a minute. Not every gift is really a gift. Sometimes gifts are actually promotional items you’re using to expand your brand and bring in new clientele. If a gift is actually a promotional item, then you don’t need to worry about the $25 limit. Promotional items given with the intention of bringing in new business are considered a marketing expense. According to Publication 463, The IRS considers the following to be promotional expenses:

1. “Items that cost $4 or less and have your name clearly and permanently printed on the gift and/or is one of the multiple items you widely distribute” (IRS, 2021, p.13). Generally, this can be anything like branded pens, wine koozies, candles, etc.
2. “Items given to your client to be displayed at their business” (IRS, 2021, p.13) This would be any sort of display racks or signs intended to promote your business.

Basically, anything that’s promotional is not considered a gift and ultimately doesn’t have a $25 limit. 

Can I Write Off Tickets to a Show on my Taxes? Gifts or Entertainment

Here it is short and sweet. The IRS simply views an experience as entertainment. Starting in 2018, entertainment is no longer a deductible business expense– so don’t get your client tickets to Wicked, if you catch my drift. 

If you didn’t get it, I’m a little sad because Wicked is fabulous and you should really go see it! But, I digress. Since it’s an experience and it won’t be considered deductible, not even up to the $25 limit. So, go ahead and see it, but know that it’s going to be fully on your dime.

I hope this helped sort out your gifting plans this year! There you have it, a list of IRS guidelines to follow when gifting to your salon’s clients. Remember, it’s important you keep track of these deductions within your bookkeeping. Keep those receipts and jot down the cost, description, and purpose of the gift along with the business relationship to the person you are giving the gift to. It’s important for tax purposes! Oh buddy, does the IRS just love auditing taxpayers who don’t have their documentation saved.

I still have questions! 

We understand that, especially if you’re using a deduction for the first time, you’ll have jitters, questions and you might feel a bit unsure. Click here to utilize our services.