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are client gifts tax deductable?

TL;DR

Client gifts are tax deductible, but there is a limit of $25 per recipient per year.

Detailed Answer

The IRS allows businesses to deduct up to $25 for business gifts given to each person during the tax year. This limit applies regardless of the cost of the gift. If you give a gift to a company, the $25 limit applies to the company as a whole unless you have a specific individual in mind. Incidental costs such as engraving, packaging, or shipping are not included in the $25 limit.

Where to Put It on the Tax Form

Schedule C, Line 27a for sole proprietors; Form 1120, Line 19 for corporations.

Real World Example

A freelance graphic designer buys a $40 gift basket for a client. Only $25 of the gift basket cost is deductible as a business expense.

Calculation Required

A calculation is required for this deduction.

Calculate the deductible amount by taking the lesser of the gift's cost or $25. For example, if a gift costs $40, only $25 is deductible.

Audit Risk & Documentation Tips

To minimize audit risk, keep detailed records of each gift, including the date, description, cost, and business purpose. Retain receipts and any correspondence that demonstrates the business relationship with the recipient.

IRS Reference

IRS Publication 463, Chapter 3

Relevant Industries

Small BusinessConsultantsSales ProfessionalsFreelancers

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 8, 2025

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