The $25 rule
You can deduct up to $25 per person per year for business gifts. This includes gifts to clients, potential clients, vendors, and business associates. If you and your spouse both give gifts to the same person, you're treated as one taxpayer — still $25 total.
Yes, $25 is absurdly low. It hasn't been updated since 1962. But it's the rule.
What doesn't count toward the $25 limit
- Incidental costs: Gift wrapping, engraving, packaging, and shipping don't count toward the $25 limit
- Promotional items: Items costing $4 or less that have your business name permanently imprinted (pens, mugs, calendars) are not treated as gifts at all — they're advertising expenses with no per-person limit
- Signs and display racks: Items given for use on the recipient's business premises are not gifts
Gift vs. entertainment
If you take a client to a show or sporting event, that's entertainment (not deductible since 2018). But if you give them tickets and don't go with them, you can choose to treat it as a gift ($25 limit) or entertainment (not deductible). Usually the gift treatment is better.
A gift basket or food item sent to a client's office is a gift ($25 limit). Taking them to dinner is a meal (50% deductible with no per-person cap). Sometimes the meal deduction is the better play.
You have 20 clients. For the holidays, you send each a $40 gift basket plus $8 shipping.
- Gift deduction: 20 × $25 = $500 (capped at $25 per person, even though you spent $40)
- Shipping: 20 × $8 = $160 (doesn't count toward the $25 limit)
Total deductible: $660 (you spent $960 total)
See IRS Publication 463 (Travel, Gift, and Car Expenses), Chapter 3. Report on Schedule C, Line 27a (Other expenses). Keep records of each gift: cost, date, business relationship, and business purpose.
Track gifts and stay under the limit
Hivebooks categorizes your gift expenses and helps you track spending per client. Never accidentally exceed the $25 limit.
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