Are Client Gifts Tax Deductible? [Avoid These Costly Mistakes]

Giving gifts to business clients is often an effective way to show your appreciation for them and forge strong relationships. You may also wonder: Are client gifts tax deductible?

The answer is generally yes, but limits apply. If you want to maximize the tax benefits you receive from giving a client gift, review these guidelines and avoid a few costly mistakes.

Are Business Gifts Deductible? 

The gifts you give to clients are tax deductible, but only up to a limit of $25 per person. This is a very low limit and is easy to exceed with even one client gift. That’s why you should thoroughly understand the client gift tax rules before giving any items to clients. 

Meanwhile, if you want to give gifts to employees, you can typically only deduct the value of the gift if it is not taxable to the employee. Non-cash gifts that are worth $75 or less are not taxable to employees, and you can count them as business deductions. 

The rules for deducting gifts to clients count whether you are giving them to someone your company does business with or to a freelancer or contractor. The incidental costs associated with the gift, such as packaging or shipping, do not count toward the $25 limit. 

Mistakes To Avoid When Giving Client Gifts 

Understanding the IRS rules for client gifts can help you make smarter decisions about how much and what types of items you should gift. These are a few mistakes to avoid as you plan your business gift tax deductions. 

• Referring to advertising expenses as gifts: Often, the purpose of giving a gift to a client is to earn their loyalty or boost your brand’s reputation. This “gift” may actually be an advertising expense. You can deduct all advertising costs from your business operating expenses. Just be sure you can prove that the gift was marketing-related; if it has your logo on it, this is a clear indicator of a marketing expense. 
• Deducting intangible gifts: Intangible gifts, such as gift cards or even cash, don’t count as “gifts” for tax purposes. Instead, these include tangible objects like gift baskets, flowers, etc. 
• Giving cash as gifts: If you want to give cash to clients, this will count as taxable income for them, and you cannot deduct the cash amount. There may be a better way to give cash, such as by providing a discount or refund on services. 
• Counting entertainment as gifts: If the gift could also be considered entertainment, you cannot deduct it from your taxes as of 2025. 
• Counting small gifts toward the limit: Gifts that are worth $4 or less don’t count toward the $25 total limit. That means you can still write them off on your taxes. You can use this exception to your advantage; consider giving small tokens of appreciation throughout the year, along with your one $25 gift. 
• Failing to track business gifts: Be sure to track all business gifts you give clients throughout the year. This will make it easier to calculate your tax write-off for client gifts and avoid exceeding the limit.

Let Us Help You Maximize Your Business Deductions 

Are client gifts tax deductible? They are up to $25 per year. Giving client gifts is just one way to boost your tax deductions and minimize your taxable income.

At Levy & Associates, we can help you take advantage of all the business tax benefits that apply to you and save you money. Contact us today at 877-620-6490 or fill out our contact form to schedule a consultation with our tax professionals.