Is Client Gifts Tax Deductible A Business Expense?

Detailed Answer

The IRS allows businesses to deduct the cost of gifts given to clients or customers, but the deduction is limited to $25 per recipient per year. This limit applies regardless of the number of gifts given to the same recipient. Incidental costs, such as engraving, packaging, or shipping, do not count towards the $25 limit if they do not add substantial value to the gift. Gifts that are considered promotional items, such as pens or calendars with your business name, may not be subject to this limit if they are widely distributed and cost less than $4 each. Additionally, gifts to a company, rather than an individual, may be deductible if there is no specific individual identified as the recipient. It's important to note that gifts to employees are subject to different rules and are not covered under this $25 limit.

Where to Put It on the Tax Form

Schedule C, Line 27a for sole proprietors. For partnerships or corporations, it would be included in the 'Other Deductions' section of the respective forms.

Real World Example

A freelance graphic designer sends a $20 coffee gift card to a client as a thank you for a completed project. The designer can deduct the full $20 as a business gift expense, as it is under the $25 limit per recipient.

Audit Risk & Documentation Tips

The audit risk for deducting client gifts is moderate. To substantiate the deduction, keep detailed records including the date, description, cost of the gift, and the business purpose. Save receipts and any correspondence that shows the gift was given as part of a business relationship. Clearly document the recipient's name and business connection to avoid any confusion during an audit.

Is client gifts tax deductible a business expense?

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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