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Is tax deductible gifts to clients tax deductible?

TL;DR

Gifts to clients are generally tax deductible, but the deduction is limited to $25 per recipient per year. This limit is often misunderstood as applying to the total spent on gifts rather than per recipient.

Detailed Answer

The IRS allows a deduction for business gifts up to $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. If a gift exceeds this amount, only $25 is deductible. Incidental costs such as engraving, packaging, or shipping are not included in the $25 limit. Gifts that are considered promotional items with your business name permanently engraved and costing less than $4 are not subject to the $25 limit. Additionally, gifts to a company rather than an individual are deductible if it is impractical to identify the recipient. However, gifts to employees are subject to different rules.

Where to Put It on the Tax Form

Schedule C, Line 27a

Real World Example

A freelance graphic designer gives a $20 coffee table book to a client as a holiday gift and later sends a $10 box of chocolates. The total spent is $30, but only $25 is deductible. The designer records $25 on Schedule C, Line 27a.

Audit Risk & Documentation Tips

The audit risk for this deduction is moderate. Taxpayers should keep detailed records including receipts, the date of the gift, the description, and the business purpose. It's also advisable to note the recipient's name and relationship to your business. Maintaining a gift log can help substantiate the deduction if audited.

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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