Work Holiday Gift Giving and Tax Deductions for Business Gifts Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Philip Taylor Published Dec 5, 2023 3 min read Reviewed by Katharina Reekmans, Enrolled Agent There are many wonderful reasons for buying gifts for your customers and business associates: maintaining good work relations, opening doors for opportunities, professional networking, and a thank-you for a job well done. There’s also one more incentive to make those gift purchases. All or part of the cost of your business gifts can actually become tax deductions. Here are the rules. Table of Contents Cost of the GiftUnderstanding Incidental CostsIndirect vs. DirectMake Tax Season A Breeze Cost of the Gift Like some tax deductions, there is a limit on exactly how much you can deduct when spending money on business gifts. Currently, that limitation is $25 per recipient per year. Of course, you are free to spend as much as you want on gifts for your clients and business associates, but the IRS only allows you to deduct up to $25 of the cost of the gift. It’s important to note that the $25 deduction refers to the recipient of the gift, not the actual gift itself. For instance, if you purchase a gift for the same customer three times during the year totaling $45, you may only deduct $25 since each gift went to the same person. However, if you bought those same three gifts and gave them to three different customers, you could end up deducting $25 for each gift, thus deducting your total purchase. Understanding Incidental Costs When purchasing gifts, it’s necessary to know what adds to the value of the gift and what does not. Let’s face it, when we’re filling out the deduction paperwork, it’s important to be accurate. This is where incidental costs come into play. The $25 limitation on tax-deductible gifts does not include incidental costs: these are costs that cannot truly increase the intrinsic value of the gift. Things such as gift-wrapping, shipping and handling, or engraving don’t really add anything to the value of the gift and therefore cannot be included in the value of the gift. While these costs must be paid for, they cannot be added to the total value when deducting the gift from your income. Indirect vs. Direct Once again, the IRS has a subcategory – the government subdivides business gifts into two categories: direct gifts and indirect gifts. Direct gifts are given directly from the giver to the recipient with no middleman or third party recipient. A direct gift isn’t a box of donuts given to the office staff at Christmas. A direct gift is a pound of coffee given to a single individual for a job well done. Indirect gifts are gifts given to an individual by way of another person. As an example, an indirect gift could be a set of kitchen knives given to a customer, but actually intended to be given to the spouse, knowing full well that the customer would never use them. It’s important to understand this distinction because the IRS will count the gift towards the recipient’s $25 yearly allowed deduction. Remember, the deduction limitation is $25 per recipient per year. Make Tax Season A Breeze As a small business owner, knowing all the deductions and rules can feel overwhelming – but you don’t have to do it alone. TurboTax Live Full Service Business matches you with a specialized business tax expert to help uncover ways to save on your taxes, maximize deductions, and find all the industry-specific tax credits you deserve. Get taxes done and off your plate with the help of a TurboTax Business Expert. Previous Post The Importance of “Clean Books” Next Post TurboTax Tax Trends Report: Tax Year 2022 Lookback Written by Philip Taylor More from Philip Taylor 6 responses to “Holiday Gift Giving and Tax Deductions for Business Gifts” I own a restaurant and often give gift certificates for my place of business as donations for various fundraisers. I have been told that they cannot be deducted as it would be “double dipping”, as I have already deducted the cost of the goods that would be used by the recipient. The same goes for product that I donate. Is this true or can I deduct part of the value. Reply A great alternative is to give a charitable gift, such as TisBest Charity Gift Cards. You can deduct the purchase as a charitable donation, but your recipient chooses the charity that gets the money. That way you don’t have to worry about the $25 limit. Reply Where do you enter standard $25 gifts to clients? Reply Whete do you enter standard $25 gifts to clients? Reply Yet another great reason to invest in corporate gifts for your clients. Tax incentives and currying business relations are definitely the main reasons for giving gifts to clients and improving morale in employees. Reply I was specifically looking for info and rules on giving my grandchildren monetary gifts which I understand I may deduct. Where may I find that info on your site? Thanks Reply Leave a ReplyCancel reply Browse Related Articles Tax Deductions and Credits Holiday Gift Giving and Tax Deductions Tax Tips Should I Itemize Tax Deductions on My Taxes? 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