J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Business Gifts

In the course of your business, you may give gifts to your dealers, distributors, customers, clients, and employees. The cost of business gifts is deductible, within limits. You may deduct only up to $25 per person per year (the dollar limit that was set back in 1962). This rule applies to both direct and indirect gifts. An indirect gift includes a gift to a company that is intended for the eventual personal use of a particular person or a gift to a spouse or child of a business customer or client.

In using the $25 limit, do not count incidental costs, such as wrapping, insuring, or shipping the gifts. Also, do not count engraving on jewelry.

Example

You give a $30 gift to client A. You may deduct $25. You give a $20 gift to client B. You may deduct $20.

Exceptions

Certain gifts are not subject to the $25 limit. These include gifts of nominal value ($4 or less) with your company name imprinted on them that you distribute to a number of clients or customers. These gifts would include, for example, pens, plastic bags, kitchen magnets, and calendars. Thus, if you give a customer a $25 gift and also send a calendar, the value of the calendar (assuming it is below $4) is not taken into account. Both gifts are deductible. Another exception to the $25 rule includes signs, display racks, or other promotional material used on business premises. Thus, if you give a dealer a display rack to hold your items, the gift is a deductible business expense, regardless of cost. ...