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Is client gift tax deduction a business expense?

TL;DR

Client gift expenses are deductible as a business expense, but there is a limit of $25 per recipient per year.

Detailed Answer

The IRS allows a deduction for business gifts up to $25 per recipient per year. This means if you give a gift to a client or business associate, you can only deduct up to $25 of the cost of that gift. If the gift exceeds $25, the excess amount is not deductible. For example, if you give a client a $50 gift, only $25 is deductible. Incidental costs such as engraving, packaging, or mailing are not included in the $25 limit if they do not add substantial value to the gift.

Where to Put It on the Tax Form

Report this deduction on Schedule C (Form 1040) under 'Other Expenses'.

Real World Example

A consultant buys a $30 pen as a gift for a client. Only $25 of the pen's cost is deductible as a business expense.

Calculation Required

A calculation is required for this deduction.

To calculate the deductible amount, subtract $25 from the total cost of the gift if it exceeds $25. For example, if a gift costs $50, the deductible amount is $25.

Audit Risk & Documentation Tips

To minimize audit risk, keep detailed records of each gift, including the cost, date, description, and business purpose. Maintain receipts and any correspondence related to the gift to substantiate the deduction.

IRS Reference

IRS Publication 463 (Travel, Entertainment, Gift, and Car Expenses)

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 15, 2025

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