Are Business Gifts Tax Deductible? Here’s What You Can and Can’t Write Off

Giving a thoughtful gift to a client, vendor, or employee is a nice way to show appreciation and strengthen relationships—but can you deduct those gifts on your taxes?

The short answer: Yes, business gifts are tax deductible—but with strict limits.

At Hogan CPA Financial Services, we help small business owners navigate the IRS’s guidelines on deductions, so they can make smart financial decisions while staying compliant. Here’s what you need to know about business gift deductions and how to track them properly.

What Does the IRS Consider a Business Gift?

A business gift is any item given to a client, customer, prospect, employee, or vendor with the intent of promoting goodwill, retaining business, or strengthening professional relationships. This could include:

Holiday gifts
Thank-you baskets
Branded merchandise
Books or wine
Gift cards (with exceptions—see below)

However, the IRS draws a hard line between gifts and entertainment expenses, which are no longer deductible under current tax law. For example, taking a client to a concert or sports event is not considered a deductible gift.

How Much Can You Deduct?

The IRS limits business gift deductions to $25 per recipient per year.

Here’s how it works:

If you give a client a $100 wine basket, only $25 is deductible, regardless of how much the gift cost.
If you give multiple gifts to the same person throughout the year, the total deductible amount cannot exceed $25.
Incidental costs like packaging, engraving, or shipping may be excluded from the limit, as long as they don’t add significant value to the gift itself.

Example: A $20 notebook engraved with the client’s name and $7 in gift wrap and shipping = $25 deductible (assuming the notebook itself is under the cap).

Are Gift Cards Deductible?

Gift cards are not treated as gifts by the IRS—they are considered cash equivalents. If given to employees, they must be reported as taxable income on their W-2, and may be subject to payroll and income tax withholding. If given to clients, they typically do not qualify for a deduction under gift rules.

Best Practices for Tracking Business Gifts

To ensure proper documentation in the event of an audit:

Record the recipient’s name, date, and business relationship
Note the reason for the gift (e.g., client appreciation, referral thank-you)
Save all receipts and invoices
Track gifts separately from entertainment or meals in your accounting system

If you’re not sure how to log or categorize these correctly, working with a professional who can accurately analyze income, expenses, and financial trends can keep your books clean and audit-ready.

Common Business Gift Mistakes to Avoid

Giving extravagant gifts with the assumption they’re fully deductible
Mixing personal and business gifting without clear documentation
Failing to record details, making it hard to prove a gift was for business purposes
Misclassifying entertainment as a gift (e.g., concert tickets)

How a Small Business CPA Can Help

A small business CPA can help you make the most of available deductions while avoiding red flags that might trigger an IRS audit. From clarifying allowable expenses to implementing clean tracking systems, the right guidance saves both money and stress at tax time.

Final Thoughts: Business Gifts Can Be Smart—When Done Right

Gifting in business is a great way to build relationships and reinforce your brand—but don’t expect big tax write-offs. With a $25 deduction limit per recipient, the value of a business gift is more in the gesture than the tax savings.

At Hogan CPA Financial Services, we help business owners understand these nuances and create smart tax strategies that align with their goals. Whether you’re gifting clients or planning year-end write-offs, we’re here to guide you every step of the way.