When can you deduct a business gift?

The IRS limits business gifts to $25 per recipient per year.

The limit treats married couples as a single giver.  Therefore, you and your spouse can’t each give $25 gifts to the same person and then deduct $50.  Similarly, partners in a partnership are considered a single giver.

A gift to a family member of a customer is considered as a gift to that customer.  If you give a customer a $25 baby gift, then any additional gifts that year to that customer will not be tax deductible.

Incidental costs, such as engraving, packaging or shipping are not included in the $25 limit, as long as the incidental costs don’t have their own inherent value.  If you are shipping fruit with a basket, a cheap basket would be incidental (and can also be deducted).  An expensive basket would be considered part of the gift (and subject to the $25 limit).

Cheap items that cost less than $4 each are not included in the $25 limit.  Don’t worry, you don’t have to count the number of free pens you give each customer to make sure their value doesn’t exceed $25.

Display or promotional materials used in a store are not included in the $25 limit.

Gifts can sometimes be taxed as entertainment.  For example, if you bring a customer to a Mets game for their birthday, that’s considered to be entertainment, rather than a gift.  On the other hand, if you give a customer Mets tickets and you stay home, you can account for the tickets either way – as a gift or as entertainment.  Choose whichever alternative will give you the bigger deduction.

Packaged food is a gift as long as it was meant for the customer to open later.

Read more about gifts on the IRS’ website.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

2 Responses to “When can you deduct a business gift?”

  1. If you do business with a couple, can you deduct $25 gifts for each? or only $25 because the spouse is a family member of the first one?

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