If your business gives gifts to customers, clients or other contacts during the holiday season, you may be able to deduct all or part of the cost. But there are strict tax-law limits to your generosity.
In general, the deduction for these types of business gifts is limited to $25 per recipient during the tax year. A gift to a company that is intended for a particular person is considered an indirect gift to that person.
If you give a gift to a member of a customer’s family, the gift is generally considered an indirect gift to the customer. However, this rule doesn’t apply if you have a bona fide, independent business relationship with the family member and the gift isn’t intended for the customer’s eventual use.
If you and your spouse both give gifts to a customer, the two of you are treated as a single taxpayer. Thus, your combined limit is $25 per recipient. It doesn’t matter if you have separate businesses, are separately employed or whether you each have an independent connection to the customer. Similarly, if a partnership gives a gift to a customer, the partnership and its partners are treated as one taxpayer.
Finally, there’s some leeway on the $25 limit. Incidental expenses — such as engraving, packaging, insurance and shipping costs — don’t count towards the cost of a gift.