What Business Gifts Are Deductible?

Most taxpayers are at least vaguely aware of the tax rule that limits the deduction for business gifts to $25 per person per year—a limitation that hasn’t been raised in decades. What isn’t as widely known is that there are a few exceptions to this rather restrictive limit. When one of these exceptions applies, you typically have no limit (or at least, a much higher limit) on the deduction for business gifts.


Here’s a quick rundown of the major exceptions to the $25 limit.

• Gifts to a Business Entity versus an Individual. The $25 limit only applies to gifts directly or indirectly given to an individual. Thus, gifts given to a company for use in the business aren’t subject to the limit. Even gifts such as tickets to a sporting event or the theater can avoid the limit under this exception if given in a situation where the taxpayer doesn’t reasonably know who will use the gift. Thus, four $30 tickets to a major league baseball game given to a large company’s accounting department for use by whoever wants them in the department would generally be deductible for the full $120 cost.
• Gifts to a Husband and Wife. If you have a business connection with both spouses and the gift is for both of them, the $25 limit doubles to $50.
• Only Direct Costs are Limited. The incidental costs of making a gift aren’t subject to the limit. Thus, the costs of custom engraving on jewelry, and the costs of packing, insuring, and mailing a gift are deductible over and above the $25 limit for the gift itself.
• Gifts to Employees. An employer is allowed to deduct the costs of gifts made to employees.   However, unless the gift is of a nominal value, such as a holiday turkey or ham, gifts of cash, a gift certificate, or a similar item of value readily convertible to cash must be included in the employee's income. 
• Gifts versus Entertainment Expenses. Entertainment expenses such as show tickets hunting or fishing trips, golf greens fees, sporting events, etc. are not deductible starting with 2018 tax returns.  Client business meals are normally only 50% deductible. For 2021 and 2022 business meals in restaurants were 100% deductible. Gifts, of course, are typically 100% deductible, but only up the first $25 of cost per donee per year. In some situations related to gifts of tickets to sporting and other events, a taxpayer can claim the deduction as a business gift. 

As you can see, there are several exceptions to the $25 rule. Thus, many businesses will be able to meet at least one of them. To the extent your business qualifies for any of them, it’s important that the qualifying expenses be tracked separately (typically by charging them to a separate account in your accounting records) so that a full deduction can be claimed.

If you have any questions regarding the types of gifts or gift-giving situations that may qualify for a full deduction or how to properly isolate and account for them in your records, please call us so we can help you get to the right answers.