If you give business gifts in the course of your trade or business,
you can deduct all or part of the cost. This chapter explains the
limits and rules for deducting business gifts.
$25 limit on business gifts.
You can deduct no more than $25 for business gifts you give
directly or indirectly to any one person during your tax year. A gift
to a company that is intended for the eventual personal use or benefit
of a particular person or a limited class of people will be considered
an indirect gift to that particular person or to the individuals
within that class of people who receive the gift.
If you give a gift to a member of a customer's family, the gift is
generally considered to be an indirect gift to the customer. This rule
does not apply if you have a bona fide, independent business
connection with that family member and the gift is not intended for
the customer's eventual use.
If you and your spouse both give gifts, both of you are treated as
one taxpayer. It does not matter whether you have separate businesses,
are separately employed, or whether each of you has an independent
connection with the recipient. If a partnership gives gifts, the
partnership and the partners are treated as one taxpayer.
Bob Jones sells products to Local Company. He and his wife, Jan,
gave Local Company three cheese packages to thank them for their
business. They paid $80 for each package, or $240 total. Three of
Local Company's executives took the packages home for their families'
use. Bob and Jan have no independent business relationship with any of
the executives' other family members. They can deduct a total of $75
($25 limit x 3) for the cheese packages.
Incidental costs, such as engraving on jewelry, or packaging,
insuring, and mailing, are generally not included in determining the
cost of a gift for purposes of the $25 limit.
A related cost is incidental only if it does not add substantial
value to the gift. For example, the cost of gift wrapping is an
incidental cost. However, the purchase of an ornamental basket for
packaging fruit is not an incidental cost if the value of the basket
is substantial compared to the value of the fruit.
The following items are not considered gifts for purposes of the
- An item that costs $4 or less and:
- Has your name clearly and permanently imprinted on the gift,
- Is one of a number of identical items you widely
Examples include pens, desk sets, and plastic bags and cases.
- Signs, display racks, or other promotional material to be
used on the business premises of the recipient.
Gift or entertainment.
Any item that might be considered either a gift or an entertainment
expense generally will be considered an entertainment expense.
However, if you give a customer packaged food or beverages that you
intend the customer to use at a later date, treat it as a gift
If you give a customer tickets to a theater performance or sporting
event and you do not go with the customer to the performance or event,
you have a choice. You can treat the cost of the tickets as either a
gift expense or an entertainment expense, whichever is to your
You can change your treatment of the tickets at a later date, but
not after the time allowed for the assessment of income tax. In most
instances, this assessment period ends 3 years after the due date of
your income tax return.
If you go with the customer to the event, you must treat the cost
of the tickets as an entertainment expense. You cannot choose, in this
case, to treat the cost of the tickets as a gift expense.
Figure B. When Are Local Transportation Expenses Deductible?
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