Deduct Gifts to Clients? 2025 Update

🎁 Can I Deduct Gifts to Clients on My Taxes? (2025 Update)

As the year wraps up and the holiday decorations start creeping out 🎄, many business owners begin thinking about client gifts — partly to show appreciation, partly to strengthen relationships, and yes… partly to snag a tax deduction before year-end.

And here's the good news: yes, you can deduct client gifts.
But the IRS adds a thin layer of reality: the deduction is capped (and it’s a small one 👀).

Let’s break down what you can deduct, what you can’t, and how to stay audit-ready in 2025.

💵 The IRS Client Gift Deduction Rule — 2025 Edition

No matter how generous you’re feeling, the IRS only allows a deduction of up to:

👉 $25 per client, per year

And yes… it’s still $25 in 2025 😅.
This limit applies whether you give the gift directly to your client or indirectly through a family member or friend.

If the gift eventually benefits your client, the IRS counts it toward that $25 cap.

🎁 Example: Direct vs. Indirect Gifts

Let’s update the example to something more 2025-friendly:

Example:
Ava runs a custom cookie business.
For the holidays, she gives her client Jordan a $35 gift box of gourmet cookies. She also drops off a $20 tumbler for Jordan’s daughter, Lily.

Because Lily has no business relationship with Ava, her tumbler counts as an indirect gift to Jordan.

👉 Ava can deduct only $25 total, even though she spent $55 in gifts.

✨ When You Can Deduct More than $25

Good news — some costs don’t count toward the $25 cap because the IRS considers them incidental and not part of the gift’s actual value.

These include:

• Engraving

• Packaging

• Wrapping

• Shipping

As long as the incidental expense doesn’t add significant value, it’s fully deductible.

Example:
Ava sends a $30 custom engraved mug to her client Sonia. Engraving and shipping cost $12.

👉 Ava can deduct $25 for the gift + the full $12 incidental cost = $37.

🚫 What Does Not Qualify as a Deductible Gift?

Some items don’t count as deductible gifts at all — even if your intention is good:

• ❌ Cash or gift cards (the IRS treats these as compensation, not gifts)

• ❌ Event tickets (usually treated as entertainment — which is nondeductible)

• ❌ Anything intended to generate sales rather than show appreciation

However, there are exceptions:

🪪 Promotional Items Under $4

If the item:

• Costs $4 or less, and

• Has your business name clearly printed on it

…it’s fully deductible AND doesn’t count toward the $25 limit.

Think: pens, branded tote bags, magnets, keychains, etc.

🗂️ Stay Organized — IRS Audits Love Paper Trails

To protect your deduction, keep detailed records for each gift:

✔️ What the gift was
✔️ Who it was for
✔️ Cost of the gift
✔️ Date it was given
✔️ Business purpose of the relationship
✔️ Whether any incidental expenses were included

This info becomes gold during an IRS review.

💬 Final Thoughts

Giving gifts is a powerful way to build loyalty, nurture relationships, and celebrate a year of hard work together. The tax deduction is just a bonus 🎁.

Just remember: the IRS limits client gifts to $25 per person per year, but incidental costs may still be deductible — and promo items under $4 don’t count toward the limit at all.

Want to make sure you’re taking your deductions correctly — and not accidentally giving the IRS a gift instead?

👉 Book a call with Lisa Brugman, EA & Associates, and let’s review your year-end tax strategy together.