Your Friendly Guide to Staying Generous and Compliant
Giving gifts to clients is one of the small joys of running a business — a way to show appreciation, mark milestones, and strengthen relationships. But when tax season rolls around, the big question pops up:
“Are client gifts tax deductible?”
The answer: sometimes… but with rules. (Of course there are rules — the IRS loves rules.)
Below is your clear, clutter-free breakdown of what is deductible, what’s absolutely not, and how to avoid common pitfalls.
🎁 The Client Gift Deduction: The Short Version
You can deduct up to $25 per client, per year, for business gifts.
Yes, that limit has been around since the 1960s. No, it has not been adjusted for inflation (sigh).
But there are a few exceptions, nuances, and “gotchas,” so keep reading to make sure your generosity doesn’t accidentally become nondeductible.
🎁 What Is Tax Deductible
1. Gifts up to $25 per client per year
If you give a gift to a business contact — a client, referral partner, vendor, etc. — you can deduct up to $25 of the cost for the entire year.
- Example: You send a $60 gift basket to a client → you can deduct $25 for tax purposes.
- Example: You give them two small gifts totaling $18 → you can deduct the full $18.
2. Items with your logo (but only if they count as “promotional”)
If you give out branded items that cost $4 or less each — think pens, stickers, keychains — the IRS considers these “de minimis promotional items,” not gifts, so they’re fully deductible.
3. Gifts to a company (vs. a person)
If the gift is clearly meant for the company as a whole (e.g. an office snack box), the IRS doesn’t make you apply the $25 limit per employee — it’s just one $25 limit total per company. (Yes, that can feel painfully low.)
4. Branded merch
Mugs, tote bags, t-shirts, hats, and other branded merchandise distributed as part of advertising campaigns are considered marketing items and are fully deductible. Wow, thanks! I needed another company branded drawstring bag!
🎁 What Is Not Tax Deductible
1. Entertainment disguised as a gift
The IRS is not fooled by “gifted” concert tickets or “surprise!” rounds of golf.
If it counts as entertainment, it’s not deductible, even if you’re not attending.
2. Gifts where you expect something in return
If the “gift” is really payment for a referral or future work, the IRS won’t treat it as a gift at all. That’s compensation, not generosity.
3. Lavish or extravagant gifts
Extravagant gifts tend to get extra IRS attention. The $25 cap still applies, and the excess is not deductible.
🎁 What About Gift Cards?
Ah, gift cards — everyone’s favorite gift for the person they don’t really know.
Gift cards follow the same set of rules. Anything over $25 per person per year is nondeductible.
Giving gift cards to your employees? That’s a whole other can of worms.
Why?
Because the IRS sees gift cards for employees as compensation, which triggers a whole bunch of other rules (blah, blah, blah, accounting stuff).
So best bet to be safe: avoid giving gift cards to employees — or give your accountant a call before handing them out like Oprah.
🎁 Tips to Stay in the IRS’s Good Graces
- Keep receipts and track who each gift went to.
- Record the business purpose (“Client appreciation,” “thank-you for referral,” etc.)
- Stay under the $25 limit unless you’re okay with only deducting $25.
- Skip the gift card and pick something more personal instead.
🎁 So… Should You Still Give Gifts?
Absolutely.
Gifts build relationships, show appreciation, and make you a memorable human instead of “that email signature with numbers.”
Just don’t let the tax rules surprise you — or worse, cause an audit migraine.
🎁 Need Help Sorting Out Your Deductions?
SingleTrack helps creatives, founders, and “I just want to focus on my thing, not IRS fine print” business owners understand what they can deduct and how to do it cleanly.
Have a tax question? Ask us.
Need to clean up your books so this stuff is easier? We’ve got you.
Want to make sure your client gifts won’t become a Schedule C horror story? Say the word.
