If you give 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 the costs of gifts.
You can deduct no more than $25 for business gifts you give directly or indirectly to each 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 doesn’t apply if you have a bona fide
, independent business connection with that family member and the gift isn’t intended for the customer's eventual use.
If you and your spouse both give gifts, both of you are treated as one taxpayer. It doesn’t 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 gourmet gift baskets to thank them
for their business. They paid $80 for each gift basket, or $240 total. Three of Local Company's executives took the gift baskets
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 × 3) for the gift baskets.
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 cost is incidental only if it doesn’t 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 isn’t an incidental cost if the value
of the basket is substantial compared to the value of the fruit.
The following items aren’t considered gifts for purposes of the $25 limit.
An item that costs $4 or less and:
Has your name clearly and permanently imprinted on the gift, and
Is one of a number of identical items you widely distribute. 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.
Figure B. When Are Transportation Expenses Deductible?
Most employees and self-employed persons can use this chart. (Don’t use this chart if your home is your principal place of
Office in the home
Gift or entertainment.
Any item that might be considered either a gift or entertainment generally will be considered entertainment. However,
if you give a customer packaged food or beverages 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 don’t 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 advantage.
You can change your treatment of the tickets at a later date by filing an amended return. Generally, an amended return
must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid,
whichever is later.
If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. You can’t choose,
in this case, to treat the cost of the tickets as a gift expense.