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Can freelancers deduct client gifts tax deductible?

TL;DR

Freelancers can generally deduct client gifts as a business expense, but there is a $25 limit per recipient per year. It's important to distinguish gifts from entertainment expenses, which have different rules.

Detailed Answer

Client gifts are deductible as a business expense, but the IRS imposes a $25 limit per recipient per year. This means if you give a gift worth more than $25, you can only deduct $25 of that gift. Items that are clearly promotional in nature, such as pens or calendars with your business name, do not count towards this limit if they cost $4 or less. Additionally, gifts to a company that are intended for the use of the company and not a specific individual are not subject to the $25 limit. However, it's crucial to ensure that the gift is not classified as entertainment, which has different deductibility rules. For example, taking a client to a concert would fall under entertainment, not a gift.

Where to Put It on the Tax Form

Schedule C, Line 27a

Real World Example

A freelance graphic designer buys a $50 gift basket for a client as a thank you for a successful project. Only $25 of this expense is deductible. The designer should record the gift's cost, the recipient's name, and the business purpose to substantiate the deduction.

Audit Risk & Documentation Tips

The audit risk for client gifts is moderate. To defend this deduction, keep detailed records including receipts, the business purpose of the gift, and the recipient's details. Ensure that the gift is not confused with entertainment expenses, which are subject to different rules and limits.

IRS Reference

IRS Publication 463

Relevant Industries

FreelancersConsultantsSmall Business OwnersReal Estate Agents

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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 15, 2025

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