The concept of customer care expenses may be confusing for many, especially when it comes to taxation. While a donation to charity can be tax-deductible, liberalities are not. A liberality is a voluntary and unconditional gift that is made out of generosity, usually without expecting anything in return. These donations are often not repayable and cannot be considered as a benefit to tax deductions.
Liberalities take different forms, such as cash or property, including real estate. They may also include non-tangible services or objects, such as offering their time as a volunteer or giving tickets for an event. Whatever form, these generous donations are not considered deductible tax expenses.
The Internal Tax Service (IRS) has certain rules on the liberalities to be followed to ensure that they remain undeductible gifts. For example, donations made to relatives or close friends cannot be declared in taxes as a benefit. In addition, all donations must comply with the IRS ‘donations’ rules, meaning that they must meet the criteria of being delivered voluntarily and unconditionally without compensation in return.
In this article, we will consider why liberalities are non-deductible expenses and how you can ensure that your generous gifts continue to comply with the rules of the IRS.
These costs are deductible if they do not exceed certain limits.
The law does not consider liberalities to be tax-deductible expenditure. To this end, deliveries of goods or services made without compensation are considered liberal.
In many cases, donations can be made to charities or non-profit organisations that entitle tax deductions. In general, donations are considered charitable contributions if they meet certain criteria established by the Internal Tax Service (IRS).
The IRS establishes specific rules for determining whether a donation is considered beneficial. In general, these donations must be delivered to an organization described in section 170(b)(1)(A) of the Internal Revenue Code. This includes religious organisations, non-profit organisations providing medical care, educational institutions and public charities. In addition, donation must be exclusively for charity purposes and must not directly benefit any particular individual or organisation.
To ensure that their donation meets the requirements for being considered tax deductible expenditure, ensure that their donation is properly documented with a written receipt from the receiving organisation. Make sure to include all relevant information, such as the amount of money given and the purpose of the donation. Remember also that only donations to qualified organisations can be deducted from taxes.
Exceptions exist for customer care expenses
Customer care costs are usually considered gratification when they are handed over to an employee in gratitude for a job well done. However, there are occasions when customer care costs are not considered gratification. For example, if a customer is expected to pay for services such as parking or parking services, these payments will not be considered bonuses.
If the customer pays for goods or services and then tips the staff for their help, the tip is not considered as a customer service expense, but a personal gratification of the customer to the employee. Finally, gifts such as flowers or cards delivered in recognition of an exceptional service cannot be considered either as customer care costs, as they were delivered as thanks rather than as payment for services rendered.
In short, customer care costs can only be considered as bonuses when it comes to voluntary payments made without the expectation of receiving goods or services in return. Specifically, they are tax-deductible (not considered liberality):
- Expenditure for customer or supplier care, as long as they do not, overall, exceed 1% of the turnover of the financial year (the amount exceeding this limit is not deductible).
- Costs for caring for workers are also deductible when adjusted to the practices and customs of the activity sector (such as purchasing Christmas baskets for employees), without there being an established expenditure limit. These gifts are considered to be more in-kind remuneration for workers, and the company must therefore satisfy the Treasury with the corresponding income from the Tax.
- Equally, the expenditure on promoting, directly or indirectly, the sale of goods and the provision of services through promotional or advertising actions is not considered to be liberal. Thus, handing over to customers low-value gifts intended to promote sales is a promotional expense and is therefore deductible without any limit (in this case, the limit of 1% of the business figure applicable to customer care does not come into play).
Our professionals will advise you on any doubts that may arise in relation to the fiscal and accounting closure of the financial year 2022. We can advise him on how to properly close his fiscal and accounting exercise, including the preparation of financial statements, the statement of tax on the financial year, the closing of accounts or the making of adjustments to the activity of the previous year. We can also advise him on how to properly document transactions and procedures for future references and compliance with fiscal regulations. In addition, we can guide you on how to create efficient income and expenditure monitoring systems and to establish processes for accurate accounting.