What expense category is Bereavement Gifts and Flowers?

When an employee, client, or business associate experiences a loss, sending flowers or a sympathy gift is a familiar and compassionate gesture. From a business perspective, these expressions of condolence are a legitimate expense; however, their tax treatment is subject to specific IRS rules.

The IRS categorizes these items as business gifts, which means their deductibility is limited. This guide explains how to correctly classify bereavement gifts under IRS rules, ensuring your business remains compliant while demonstrating support.

Bereavement Gifts and Flowers Category

The costs you incur for sending bereavement gifts and flowers on behalf of the company are classified as Business Gifts.

These are not a specific line item on a tax return. Instead, the deductible portion of these costs is reported under Other expenses. It is essential to track these costs separately to ensure compliance with the strict annual deduction limits set by the IRS.

Important Considerations While Classifying Bereavement Gifts and Flowers

The most critical factor for accountants and business owners is the $25 per-person annual deduction limit for business gifts.

The $25 Limit

As detailed in IRS Publication 463, you can deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year. This means if you send a flower arrangement costing $100 to an employee's family upon a loss, you can only deduct $25 of that cost.

Direct vs. Indirect Gifts

The $25 limit applies to both direct and indirect gifts.

• Direct Gift: Sending flowers directly to an employee or client.
• Indirect Gift: Sending a gift to a person's family member. Publication 463 states that a gift to a member of a customer's family is generally considered an indirect gift to the customer.

What About Gifts to the Company?

The IRS also addresses gifts made to a company. Suppose you send a gift to a company that is intended for the eventual personal use of a specific person or a limited group of people. In that case, it is considered an indirect gift to those individuals, and the $25 per-person limit applies.

Tax Implications and Recordkeeping

To deduct the cost of bereavement gifts, you must report them correctly and maintain meticulous records.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040), the deductible portion of the gift (up to $25) is included in the total for Part II, Line 27a, Other expenses.

What Records to Keep

According to Publication 463, you must have records that prove:

• The cost of the gift or flowers.
• The date the gift was sent.
• A description of the gift.
• The business reason for the gift (e.g., Condolences to Employee Jane Doe).
• The business relationship of the recipient.

How Fyle Can Automate Tracking for Bereavement Gifts

Fyle helps you manage and document sympathy gifts, ensuring every expense is captured and compliant with the strict IRS limit.

• Capture Receipts Instantly: Instantly capture receipts from florists or gift shops using the Fyle mobile app or email forwarding.
• Enforce the $25 Limit: Fyle’s policy engine can automatically flag any gift expense that exceeds the $25 per-person limit for review.
• Track by Recipient: Code each gift to a specific employee or client to easily monitor your annual per-person gift spending.
• Automate Your Accounting: Sync the deductible portion of the gift expense directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.