Can You Write Off Tax Deductible Gifts To Clients?

Detailed Answer

The IRS allows businesses to deduct the cost of gifts given to clients, but there is a strict limit of $25 per recipient per year. This limit applies regardless of the number of gifts given to the same person. Incidental costs, such as engraving or packaging, do not count towards the $25 limit if they do not add substantial value to the gift. Gifts must be ordinary and necessary expenses incurred in the course of business. Gifts to clients that are considered entertainment, such as tickets to an event, may not be deductible as gifts but might be deductible under entertainment expenses if they meet those criteria. It's important to note that gifts to employees are subject to different rules and limits.

Where to Put It on the Tax Form

Schedule C, Line 27a

Real World Example

A freelance graphic designer gives a $20 branded mug to a client as a holiday gift. Since the cost is under the $25 limit, the designer can deduct the full $20 on their Schedule C as a business gift expense.

Audit Risk & Documentation Tips

The audit risk for deducting client gifts is moderate. To defend this deduction, keep detailed records including the date, description, and cost of the gift, as well as the business relationship with the recipient. Save receipts and any correspondence related to the gift. Clearly document any incidental costs separately if they are not included in the $25 limit.

Can you write off tax deductible gifts to clients?

TL;DR

Detailed Answer

Where to Put It on the Tax Form

Real World Example

Audit Risk & Documentation Tips

IRS Reference

Relevant Industries

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