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Is tax deductible gifts to clients a business expense?

TL;DR

Yes, gifts to clients are generally deductible as a business expense, but there is a $25 limit per recipient per tax year. This limit is often misunderstood as applying to the total amount spent on all gifts.

Detailed Answer

Gifts to clients are deductible as a business expense under IRS rules, but the deduction is limited to $25 per recipient per year. This means if you give a gift worth $50 to a single client, only $25 is deductible. The $25 limit applies to both direct gifts and indirect gifts (e.g., gifts given to a client's family). Exceptions include promotional items like pens or calendars with your business name, which are not subject to the $25 limit if they cost $4 or less. Additionally, gifts that are considered entertainment, such as tickets to an event, may be subject to different rules and should be evaluated separately.

Where to Put It on the Tax Form

Schedule C, Line 27a

Real World Example

A freelance graphic designer sends a $30 custom mug to a client as a thank you for a successful project. The designer can only deduct $25 of the gift on their Schedule C. If they send a $10 branded calendar to another client, the full amount is deductible since it's a promotional item under $4.

Audit Risk & Documentation Tips

The audit risk for this deduction is moderate. To defend this deduction, keep detailed records including receipts, the date of the gift, the recipient's name, and the business purpose. It's also wise to document any promotional items separately from other gifts to ensure compliance with IRS rules.

IRS Reference

IRS Pub 463, Chapter 3, 'Gifts'.

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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