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Tax Newsletter

Business Gifts: What is Deductible?

If you give business gifts either directly or indirectly to clients or potential clients, you may be able to deduct some or all of the cost of the gifts.

Business gifts that may typically be characterized as entertainment expenses would be subject to the 50% limit on food and beverage (meals) and entertainment expenses. In some instances, you may choose whether to deduct the cost of the gift as a gift expense or as an entertainment expense. For example, if your gift is meant to be used at a later date (such as packaged food or beverages), it should be deducted as a gift expense.

$25 Limit

Generally, you may deduct no more than $25 for business gifts that you give directly or indirectly to any one person during the year. Incidental costs, such as engraving or gift-wrapping, are not included in determining the cost of a gift. Additionally, circumventing the $25 limit by giving separate gifts to family members is not allowed.

Exceptions

Certain items are not included in the $25 limit for business gifts, including:

  • Gifts that are less than $4 that have your name permanently imprinted on them and are widely distributed (pens, pads of paper, bags, desk sets)
  • Promotional items (signs, display racks) to be used on the business premises of the recipient

For example, if you spent $25 on a business gift, included a $4 pen engraved with your business identity, and spent another $4 wrapping the gift, you may take a total deduction in the amount of $29.

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