Are gifts to clients tax deductible?

Gifts to clients can be a excellent gesture for strengthening relationships and building more business opportunities. Depending on the person and situation, a gift can pay dividends in various ways. Unfortunately, the tax benefits of business-related gifts are not substantial.

Business gifts face strict deduction limits:

  • Direct or indirect business gifts over $25 to each person are not deductible.
  • If a taxpayer and spouse give gifts to the same person, both are treated as one taxpayer, so the maximum deduction is still $25 combined. 
  • Incidental costs such as packing or shipping aren’t included in the $25 limit if they don’t add substantial value to the gift.
  • When looking at the $25 per person limit, don’t consider gifts costing $4.00 or less that have your business name permanently engraved on the item and that you distribute regularly.

Another important distinction is that any item considered a gift or entertainment is generally considered entertainment and cannot be deducted. Furthermore, it is mandatory to have records that prove the business purpose of each gift and receipts for the amount spent.