The $25 rule
You can give a client a $500 gift basket, but you can only deduct $25 of it. The $25 limit is per recipient, per year. If you send gifts to 20 clients, your maximum deduction is $500 (20 × $25).
This limit has been $25 since 1986. Yes, really. Congress hasn't adjusted it for inflation.
What doesn't count toward the $25 limit?
- Items costing $4 or less with your business name on them (pens, calendars, mugs)
- Signs, display racks, or promotional material placed at the client's business
- Incidental costs: Gift wrapping, engraving, shipping, insurance
Branded promotional items under $4 are considered advertising, not gifts, so they're fully deductible with no limit.
You send a client a $75 bottle of wine with $15 shipping in a $5 gift bag.
Gift value: $75 (but limited to $25 deduction)
Shipping: $15 (doesn't count toward limit, fully deductible)
Gift bag: $5 (incidental, fully deductible)
Total deduction: $25 + $15 + $5 = $45
See IRS Publication 463 (Travel, Gift, and Car Expenses), Chapter 3. Report on Schedule C as a business expense.
Track client gifts in Hivebooks
Create a "Client Gifts" category in Hivebooks to track your gift spending per client. Stay under the $25 limit and maximize your deduction.
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