Business gifts deduction: the $25 limit

Many people who work for themselves give gifts to clients. A box of treats in December. A thank-you after a big project. These gifts are a business cost, so you can deduct part of them.

The part you can deduct is small. The tax law lets you deduct no more than $25 of gifts to each person in a year. Some costs do not count toward that limit, and some items are not gifts at all.

The short version

• You can deduct up to $25 of business gifts to each person each year (IRS Publication 463).
• The limit is per person, not per gift.
• Costs such as wrapping, packaging and mailing usually do not count toward the $25. You can deduct them in addition.
• Low-cost items with your business name printed on them, and promotional material for a client’s business premises, are not gifts. The $25 limit does not apply to them.
• Tickets to a game or a concert are usually entertainment, not a gift. Entertainment is not deductible.
• Keep a record of what you gave, to whom, when, and why.

Words to know

Business gift. Something you give to a person in the course of your business, such as a client, a supplier or a referral partner.

Incidental cost. An extra cost that does not add much value to the gift, such as gift wrap or postage.

Entertainment. An activity such as a show, a game or a concert. You cannot deduct entertainment.

What counts toward the $25

The cost of the gift itself counts. Publication 463 says incidental costs, “such as engraving on jewelry, or packaging, insuring, and mailing,” are generally not included.

A cost is incidental only if it does not add substantial value to the gift. Gift wrap is incidental. But an expensive decorative basket that holds some fruit is part of the gift.

What is not a gift

Two kinds of items are not gifts under this rule (Publication 463):

• An item that costs $4 or less, has your name clearly and permanently printed on it, and is one of many identical items you give out widely. Examples are pens and bags with your logo.
• Signs, display racks or other promotional material for use on the recipient’s business premises.

You deduct these as normal business costs. See what counts as a business expense for the general rule.

Rules that stop easy workarounds

• Gifts through a company. A gift to a company that is meant for the personal use of a particular person, or a small group, is a gift to those people.
• Gifts to family. A gift to a client’s family member is usually a gift to the client, unless you have your own business connection with that family member.
• You and your spouse. If you both give gifts, you are one giver for the $25 limit, even with separate businesses.
• Gift or entertainment. If an item could be either, it is usually entertainment. One exception: packaged food or drink that the client will use later is a gift.

All four rules come from the gifts section of Publication 463. The $25 limit is in section 274(b) of the tax code.

Records to keep

Gifts have stricter proof rules than most expenses. Publication 463 says you must show:

1. the cost of the gift,
2. the date you gave it,
3. a description of the gift,
4. the business reason for the gift, and
5. the business relationship of the person who got it.

A receipt plus a short list of recipients is usually enough. Write the list when you buy the gifts, not months later. Our guide on how to track business expenses for taxes shows a simple way to do this.

An example

Nora is a freelance copywriter. (She is an example, not a real person.) In December she:

• sends 10 clients a food box that costs $60, plus $12 shipping each,
• hands out 200 pens with her business name printed on them, at $2 each, and
• gives her largest client two concert tickets for $200. She does not go.

Nora can still give generous gifts. She just knows that only $25 for each person is deductible.

A Righto tip

In Righto, make a “Client gifts” category and keep logo items in a separate advertising category. Attach the receipt and your recipient list to the transaction, so the record is in one place. You can also ask your own AI agent, such as Claude Code, to list your gift spending for the year. See how agents work with Righto.

Common questions

Is the $25 limit per gift or per person? Per person, per year. Three $20 gifts to one client in a year give a deduction of $25 in total.

Can I deduct a gift to a whole company? If it is meant for particular people, it is a gift to those people.

Where do I report gifts? A sole proprietor reports them on Schedule C as other expenses. Publication 463 points to line 27b.

What to do now

1. Make a list of the people you plan to give gifts to.
2. Plan about $25 of gift cost for each person, if you want the full deduction.
3. Skip event tickets as gifts. They are not deductible.
4. Keep the receipt and write down who got each gift and why.
5. Put gifts and logo items in separate categories.

Righto is free, easy to use and needs no account.

Sources

• Publication 463 (2025), Travel, Gift, and Car Expenses, IRS (Gifts; Recordkeeping; How To Report)
• 26 U.S. Code § 274, Disallowance of certain entertainment, etc., expenses, Legal Information Institute, Cornell Law School