Yes, you can write off gifts to clients, but there are strict limits set by the IRS on how much you can deduct.
Key Rule: $25 Limit Per Client
The IRS allows you to deduct up to $25 per client per year for business gifts. This limit is quite low, so even if you spend more than that, you can only deduct $25 per client, no matter the cost of the gift.
Additional Details:
1. Direct vs. Indirect Gifts:
- Direct Gifts: If you give a gift directly to a client (e.g., a bottle of wine or a gift basket), the $25 limit applies.
- Indirect Gifts: If you give a gift to someone related to the client (e.g., the spouse of the client), it’s still considered a gift to the client, and the $25 limit applies.
2. Exceptions to the $25 Limit:
- Promotional Items: If you give out branded items (like pens, mugs, or calendars) that cost less than $4 each and are widely distributed (not just to one or two specific clients), these are not subject to the $25 limit. You can deduct the full cost as advertising.
- Entertainment Tickets: If you give a client tickets to an event (concerts, sports, etc.), this is considered an entertainment expense rather than a gift, and different rules apply. You can only deduct 50% of the face value of the ticket.
3. Shipping and Wrapping Costs:
You can deduct the shipping and gift-wrapping costs in addition to the $25 limit. These costs are not included in the $25 cap, so if you send a gift to a client that costs $20 but pay $10 for shipping, you can deduct the full $30.
4. Gifts to a Company:
If the gift is given to a company rather than a specific individual, the $25 limit applies to the company as a whole, not to each employee. This means that if you give a gift to an office (like a basket of treats), the limit is still $25 for that company.
Documentation Requirements:
To write off client gifts, you must maintain clear documentation of:
- The gift’s cost (e.g., receipts).
- The business purpose (why you gave the gift).
- The recipient’s name and relationship to your business.
This information will be crucial if the IRS ever audits your business expenses.
Table Summary:
| Scenario | Deductible? |
|---|---|
| Gift to a client (up to $25) | Yes, up to $25 per client per year |
| Gifts under $4 (branded, widely distributed) | Fully deductible as advertising |
| Shipping and gift-wrapping costs | Fully deductible, not part of the $25 limit |
| Entertainment tickets (e.g., sports, concerts) | 50% deductible (as entertainment) |
| Gifts to a company (not individual) | $25 limit applies to the whole company |
Final Tip:
The $25 limit may feel restrictive, but careful planning can help maximize the business value of gifts within these boundaries. Keep records, give gifts strategically, and you can still make a positive impression while benefiting from the deduction.