Question

In calculating accounting income, a company deducted $2,201 in gift cards for distribution to customers as seasonal gifts.

What adjustment, if any, would be required in reconciling accounting income to income for tax purposes?

Answer 1

To deduct all or part of the gift it must be given in the course of your trade or business subject to the following;

· You can deduct up to $25 of the gifts given directly or indirectly to each person during the tax year

· If you and your spouse both gifted the same person, both of you are treated as one taxpayer.

· Incidental costs should not include in the $25 limit

· For purposes of the limit, should not consider gifts costing $4.00 or less

· If the gift can be consider as entertainment then it cannot be deducted.

· Business must kept records that prove the business purpose and the details of amount spent.

If all these conditions are satisfied company can deduct all the $2,201 for tax purpose.