Maxine Aaronson, Attorney at Law
Attorneys discussing a case. Glasses resting on documents depicting charts/diagrams. The word 'strategy' is highlighted. Puzzles coming together.

Tax Newsletter

Can You Deduct Expenses Related to Gifts?

If you give business gifts either directly or indirectly to clients or potential clients, you may be able to deduct some or all of the cost of the gifts.

Business gifts that may typically be characterized as entertainment expenses would be subject to the 50% limit on food and beverage (meals) and entertainment expenses. In some instances, you may choose whether to deduct the cost of the gift as a gift expense or as an entertainment expense. For example, if your gift is meant to be used at a later date (such as packaged food or beverages), it should be deducted as a gift expense.

$25 Limit

Generally, you may deduct no more than $25 for business gifts that you give directly or indirectly to any one person during the year. Incidental costs, such as engraving or gift-wrapping, are not included in determining the cost of a gift. Additionally, circumventing the $25 limit by giving separate gifts to family members is not allowed.

Exceptions

Certain items are not included in the $25 limit for business gifts, including:

  • Gifts that are less than $4 that have your name permanently imprinted on them and are widely distributed (pens, pads of paper, bags, desk sets)
  • Promotional items (signs, display racks) to be used on the business premises of the recipient

For example, if you spent $25 on a business gift, included a $4 pen engraved with your business identity, and spent another $4 wrapping the gift, you may take a total deduction in the amount of $29.

  • Social Security and Self-Employment Tax
    The Internal Revenue Service requires certain individuals who have a trade or business to pay self-employment tax. What is the reason for this? Social Security Withholdings If you work for someone else,... Read more.
  • Modern "Sin Taxes" for Certain Habits
    To compensate for budget deficits and a poor economy, many states have imposed higher taxes on behaviors that have traditionally been perceived as “bad” habits – smoking, drinking and gambling. The people targeted by... Read more.
  • Statutory Employees May be Subject to Withholding
    The term “common law” refers to a body of non-statutory tradition, custom, and decisions in actual cases that has historically been used as a basis for making legal decisions, often when laws and statutes governing the... Read more.
  • Obtaining Tax Relief Through the Innocent Spouse Doctrine
    Many married couples file joint tax returns to take advantage of certain benefits offered by this filing status. This may result in the unfortunate and unintended consequence of one spouse being held responsible for the underreporting... Read more.
Law Commentary Legal News