Business Gifts

Many entrepreneurs give gifts to their customers, clients, suppliers or other business associates to show their appreciation. Giving gifts is an ordinary and necessary part of doing business, and the IRS recognizes this. Accordingly, you are allowed to deduct certain business gift costs, subject to limitations. The business gift deduction could be claimed on your Schedule C or your Schedule E, while gifts made to charitable organizations could be deducted on your Schedule A if you itemize your deductions.


Ted owns and manages a long-term rental property a few blocks down the street from his primary residence. To show his appreciation for his upstanding tenants, Ted purchased baseball tickets for $40 each (face value) for the three occupants of his rental unit. After a conversation with his tax advisor, Ted realized that since he did not attend the event with his tenants he could either deduct the cost of the tickets as an entertainment expense, which would total $60 (($40 x 3) x 50%) or deduct the cost of the tickets as a gift expense, which would total $75 ($25 limit for each tenant x 3). Naturally, Ted decided to take the $75 gift deduction on line 19 of his Schedule E.


Woody is a carpenter who recently worked on a great remodeling project booked through taskrabbit. Since the woman who hired him was such a pleasure to work with, Woody purchased her an $80 gift basket upon completion of the project. When Woody prepares his federal tax return, even though he spent $80 on the basket he will only be able to deduct $25 on line 27a of his Schedule C since the business gift deduction is limited to $25 per person.


Dorothy is a freelance writer who creates content for a blog and two major online magazines. To thank her clients for the steady stream of work they provide, on separate occasions she chose to take of her each editors to a basketball game, tickets to which cost $60 each (face value). She also purchased each editor a $23 holiday gift bag. When Dorothy prepares her taxes she should deduct $180 ($60 x 6 tickets x 50% limit) as an entertainment expense (since she attended the basketball games) on line 24b of her Schedule C, and $69 ($23 x 3) as a gift expense on line 27a of her Schedule C. Note that since her gift bags were less than $25, her deduction is not limited.


Pauly, a freelance knife maker recently fulfilled a large knife order for a new client. In addition to delivering the knives, for no additional cost he also provided his client a custom display case he spent $550 on. Since the display case is a promotional item intended to be used on his clients premises, Pauly is not subject to the $25 gift limit and the full $550 would be deductible on his Schedule C.


Cecelia is a freelance photographer who regularly works with two celebrity clients who are extremely loyal to her. For the holidays, Cecelia printed and framed her favorite pictures from the year and sent them to her two loyal clients. The printing was free, the frames cost $25 each, engraving an additional $5 and shipping $8 for a total gift cost of $38. Since the engraving and shipping costs could be considered incidental (did not add substantial value to the gift), Cecelia could deduct the full $38 for each gift as business expense.


  • Your deduction for business gifts is limited to $25 per year per recipient, regardless of how much you paid for your gift. If you give a gift to a business that will eventually be used by individuals at the organization, the $25 limit still applies (i.e. deduction for restaurant gift certificate issued to a business intended to be used by 6 members management team is limited to $125 or $25 x 6).
  • Keep in mind that when applying the gift deduction a married couple is considered to be one recipient. Further, if you have a business partner, your business is considered one taxpayer when you apply the gift deduction (i.e. your business could not deduct $25 for your gift to a client, and $25 for your partner's gift to the same client).
  • Generally, if your expense could be considered either a gift or entertainment you can be deduct it using which ever method is most advantageous (i.e. $25 gift limit or 50% entertainment limit). Note however that if you accompany your client when they receive the benefit of your gift (i.e. you gift tickets to a concert and you attend) you must classify your deduction as an entertainment expense.
  • Certain gifts you purchase are not subject to the $25 annual limit including promotional materials intended to be used on the premises of the recipient, gifts costing less than $4 that contain your businesses name (i.e. you give 100 $4 key chains to a client), incidental costs that do not add substantial value to your gift (wrapping, postage, etc.) and certain employee awards that cost less than $400 or $1,600 (limit depends specific requirements. See IRS for details).
  • If you give a gift to charity, some or all of these costs could be considered a donation and be 100% deductible on your Schedule A. Refer to our charitable deduction page for more details.

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