Sue is a small business owner who often gives gifts to clients. She gives a $40 gift to her client, Mr. Smith, and his wife. Sue spent $6 to wrap the gift. She also gave out 400 calendars with her company name on them. Each calendar cost $1. Sue also gave her secretary a $370 watch for his 10 years of service. How much of the above expenses may she deduct?

Question

Quizplus · Accepted Answer

For tax purposes, business gifts are limited to $25 per person per year. However, the $6 wrapping cost is allowed in addition to the $40 gift, so a total of $46 may be deducted for Mr. Smith and his wife. The cost of the calendars ($400 x $1) is $400 and may be fully deducted as a business expense. The watch given to the secretary for his years of service is not considered a gift, but rather a bonus or incentive, and therefore its cost of $370 may be fully deducted as a business expense. 
Total deductible expenses = $46 + $400 + $370 = $816. 
Therefore, the correct answer is D.

Sue Is a Small Business Owner Who Often Gives Gifts