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Tax tip: Reach into your own pocket for gifts

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I want to reduce the size of my estate. Can I give gifts from my company under the annual gift tax exclusion? B.R.M., San Antonio  

A. Nice try, but no. The annual gift tax exclusion ($13,000 per recipient for 2011) is only available for gifts made by an individual taxpayer. This removes the gifted assets from your taxable estate. Conversely, if you have your business give gifts directly to someone, the annual limit is a paltry $25 per recipient.

Don’t try to circumvent this rule either by paying the recipient compensation for work that is never performed. The “gift” will be subject to income tax plus interest and penalties and your business may not be able to claim any deduction.

Tip: Of course, you may still utilize the annual gift tax exclusion by giving others gifts of stock in your company.

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