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Is gift to client tax deductible a business expense?

TL;DR

Gifts to clients are generally deductible as a business expense, but the deduction is limited to $25 per recipient per year. This limit often surprises business owners who assume more generous deductions are available.

Detailed Answer

The IRS allows businesses to deduct gifts given to clients as a business expense, but there is a strict limit of $25 per recipient per year. This means if you give a client multiple gifts throughout the year, the total deduction for that client cannot exceed $25. Gifts that are considered promotional items, such as pens or calendars with your business name, do not count towards this limit if they cost $4 or less. Additionally, items like plaques or trophies are not subject to the $25 limit if they are intended for display and cost $400 or less. It's important to note that incidental costs such as engraving, packaging, or mailing are not included in the $25 limit.

Where to Put It on the Tax Form

Schedule C, Line 27a

Real World Example

A freelance graphic designer gives a $20 coffee gift card to a client as a thank you for a referral. Later in the year, the designer sends a $10 box of chocolates to the same client for the holidays. The designer can only deduct $25 total for gifts to this client, so $5 of the chocolate gift is not deductible.

Audit Risk & Documentation Tips

The audit risk for this deduction is moderate. To defend this deduction, keep detailed records of each gift, including the date, recipient, and cost. Save receipts and note the business purpose of the gift. Ensure that the total deducted for each client does not exceed the $25 limit, and maintain documentation showing any incidental costs separately.

IRS Reference

IRS Publication 463, Chapter 3.

Relevant Industries

FreelancersConsultantsReal Estate AgentsSales Professionals

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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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