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Can I write off gifts to clients?

TL;DR

Yes, you can deduct gifts to clients, but there are limitations.

Detailed Answer

Gifts to clients are tax deductible, but they are subject to a limit of $25 per person per year. This limit applies to both direct and indirect gifts. For example, if you buy a $100 gift for a client's family, it's still considered as a gift to the client and the deductible amount is limited to $25. However, incidental costs such as engraving, packaging, insuring and mailing, are generally not included in determining the cost of the gift. Also, promotional items that cost $4 or less and have your name clearly and permanently imprinted on the gift, and are widely distributed, are not considered gifts and are fully deductible.

Where to Put It on the Tax Form

Schedule C (Form 1040), Line 27a

Real World Example

A consultant buys a $50 bottle of wine for a client. She can only deduct $25 of the cost as a gift. However, if she also spends $5 on gift wrapping, she can deduct the full $5 for the wrapping because it's an incidental cost.

Calculation Required

A calculation is required for this deduction.

You'll need to calculate the total cost of gifts given to each person during the tax year. If the total exceeds $25, you can only deduct $25. For incidental costs, calculate the total cost and deduct it in full if it doesn't add substantial value to the gift.

Audit Risk & Documentation Tips

Keep detailed records of each gift, including the cost, the date of purchase, the business purpose, and the client's name. Receipts are essential for substantiating your deductions. Be aware that the IRS may scrutinize this area, especially if your gift expenses are high.

IRS Reference

IRS Publication 463, Travel, Gift, and Car Expenses

Relevant Industries

FreelancersSmall BusinessSales ProfessionalsConsultants

Related Questions

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 3, 2025

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