US business gifts: apply the $25 limit to the person and the year
A business sends a customer a $40 gift and pays $6 to mail it. Later that year, someone suggests sending the same person another gift and deducting a fresh $25. US federal income tax rules do not work that way. The business gift limit is $25 per person per tax year, and repeat gifts do not restart it. The limit caps the deduction, not what a business may spend, and it is separate from any gift-tax allowance.
Count by person, not by parcel
The $25 limit applies to gifts given directly or indirectly to each person during the tax year. A parcel addressed to a company still needs a closer look, because a gift intended for a particular person's eventual personal use is an indirect gift to that person.
The same logic applies to families and related givers:
- A gift to a customer's family member is generally an indirect gift to the customer, unless there is a bona fide independent business connection and the gift is not for the customer's eventual use.
- Spouses count as one taxpayer for these rules.
- A partnership and its partners also count as one taxpayer.
Sources and context, checked :
What sits outside the $25
Some costs and items have their own treatment, so check them before adding everything to the recipient's running total. An item that could be either a gift or entertainment is generally entertainment. Generally nondeductible entertainment does not become a $25 deductible gift because someone changes its ledger description.
| Item | Federal treatment |
|---|---|
| Packaging, insurance and mailing | Generally outside the $25 if they do not add substantial value |
| Valuable ornamental basket | Can be part of the gift cost |
| Item costing $4 or less | Outside the limit only if the business name is clearly and permanently imprinted and it is one of many identical items widely distributed |
| Signs, display racks or other promotional material for use on the recipient's business premises | Outside the limit if they qualify for this exception |
| Packaged food or drink for a customer's later use | Treated as a gift |
Sources and context, checked :
A hypothetical gift to one customer
Assume a business buys an ordinary and necessary $40 packaged gift for one customer's later personal use and pays $6 for mailing. The mailing adds no substantial value to the gift. Neither the taxpayer, a spouse nor a related partnership or partner gave this person anything else that tax year, and the records are complete.
The ledger shows $46 of spending, but the deduction is $31. A second gift to the same person later in the year would not create another $25 allowance for gift cost.
| Cost | Amount paid | Deductible | Not deductible |
|---|---|---|---|
| Gift | $40 | $25 | $15 |
| Mailing | $6 | $6 | $0 |
| Total | $46 | $31 | $15 |
Keep a running recipient record
A receipt shows what was bought, but the deduction also depends on who received the gift and what else that person received during the year. The business should substantiate the cost, date, description, business purpose and business relationship.
These rules cover federal business gifts to customers. Employee awards, wages, charitable gifts, gift tax, state taxes and anti-bribery rules are separate questions.
- Track each recipient, any indirect recipient, the gift date and the year-to-date gift cost across everyone whose gifts count together.
- Split the gift cost from supported incidental costs at the time of purchase, without relabeling items later.
- Retain the receipt with the description, business purpose and relationship.
Sources and context, checked :