With the holiday season upon us, many agencies will be giving gifts to their clients and employees.
Agency owners often ask questions about these gifts – everything from how much to spend to what the tax consequences might be.
This article addresses some of the most common inquiries, but it makes sense to start with the big picture: should you even be doing it?
Are holiday gifts for clients and employees a good idea?
It’s always good to show appreciation for your team and the clients that they serve. Traditionally, many businesses give gifts during the holiday season as a tangible sign of that appreciation.
The challenge is that most people receive many gifts at the end of the year, so it is more difficult to stand out.
That’s why you might consider giving gifts (and cards) on a different schedule. You might time it to employees’ birthdays or client anniversaries.
Some of the best gifts are those given with no specific significance to the calendar and more because of something that came up in conversation.
Many years ago, one of my employees was having a conversation with a vendor and he said something like, “You guys are so helpful that I’m sure you’d send me a ham sandwich if I asked for one.”
A gift basket including the fixings for a ham sandwich showed up a day or two later.
So while there’s nothing wrong with gifting in December, think about giving tokens of appreciation at other times instead of or in addition to that practice.
What type of gifts should I give?
It’s easy to make a list of everyone that should receive a gift and then sending them all a gourmet food gift basket, a bottle of wine, or some other similar solution.
If you’re going to have a gift program, though, try to give something that is more personal – either to the recipient or that represents who you and your agency are.
For example, one year I gifted bottles of New Hampshire maple syrup to clients. It was something unique to my local community that most of my clients likely hadn’t tried before.
I generally advise clients not to gift alcohol unless you know the personal tastes of the recipient. Not only do you risk wasting money on something that they may not find appealing, some people simply don’t consume it for religious or personal reasons.
As important as what you give is how you give it. It is better if you ship the packages yourself and include a handwritten personal note.
One agency client of mine pays as much attention to the packaging as the gift itself – and it is such a special touch that it really stands out. It has the added advantage of showcasing how they work with clients since they often ship packages to influencers.
How much should I spend on holiday gifts for my employees?
The amount of money you spend on employee gifts is less important than how you position the gift.
Appearance matters more than reality when it comes to gifts given to your team.
Gifts can backfire if you act like a $25 gift card is a big deal, for example.
If you give gifts of significantly different value to individual employees, you can also run into problems since they are undoubtedly comparing notes.
It can also make a difference if you give out year-end bonuses in close proximity to any holiday gifts. If you have a great year as a business and then give really inexpensive gifts with no bonuses, that can have an impact on morale.
You also need to know your team. They may prefer a nice holiday dinner as a team instead of a gift that they may not be interested in.
Should I have rules about employee gift-giving?
Giving gifts in the office can get tricky when it involves “gifting up” to supervisors, including the owner.
You don’t want to offend employees who naturally enjoy giving gifts, but at the same time you don’t want to create a culture where gifts to the boss seem to be expected.
I generally have had a policy against employees giving me gifts in my business unless they are handmade things like cookies.
The most important thing is to keep an eye on employee behavior and take steps to avoid anyone feeling obligated to participate in costly gift-giving.
How much should I spend on holiday gifts for clients?
First, make sure you understand what rules your clients may have about receiving gifts from vendors. Most government organizations and many larger private companies have rules prohibiting or substantially limiting the value of gifts that can be accepted.
You don’t want to put your client contacts in a difficult position where they must return a gift that you have sent.
If you’re not sure about the rules but still really want to send something, a group gift (like a gourmet food basket) might be your best bet.
As noted previously, the value of the gift is less important than the thought that goes into it. The more personal or meaningful it is, the more likely it is to make a positive impression.
Are gifts to clients tax deductible?
You should always consult with a tax professional who can examine all of the facts relevant to your own situation, but client gifts have very limited tax deductibility in the United States.
The IRS website explains that only $25 worth of gifts per person can be deducted. There are certain exceptions, as well as other limitations, that may apply
The bottom line is that if you are giving extravagant gifts, don’t do so with the idea that you can write it off as a business expense.
Are gifts to employees taxable as income?
Again, consult your own tax professional for specific advice, but in the United States small, non-cash gifts to employees usually don’t need to be reported as taxable income.
The IRS considers some holiday gifts to be “de minimis fringe benefits” as long as they are less than $100 per employee and aren’t given as cash or cash equivalents like gift certificates.
If you do end up giving a gift that must be reported as taxable income, it is good practice to add some additional compensation to “true up” the gift and cover the employee’s share of the tax on that income.
For example, I once worked for an organization that handed out $100 bills to every employee at the annual holiday party. That amount was reported on the next paycheck without any additional amount to cover the tax – the net result of which was the paycheck was slightly smaller than usual. Needless to say, that didn’t go over well with employees.
Remember that it really is the thought that counts
Don’t view gifts to your agency clients and employees as an investment.
Make sure that you don’t overlook the rules about gift-giving, including those that your clients may have as well as the government rules and regulations that apply to your specific circumstances.
If you’re giving meaningful gifts because you enjoy doing it and believe it helps show your appreciation, then you probably won’t go wrong.