How to Deduct Client Gifts on Your Taxes

Whether sent during onboarding, holidays, or birthdays, client gifts are powerful tools for enhancing your overall client experience. By creating loyalty, these gifts play a crucial role in retaining your clients because, let’s be honest, who doesn’t love receiving gifts?

As they do with every credit card swipe, small business owners often wonder if these expenses can be written off.

I have some good news and bad news:

The good news is that the IRS allows you to deduct the costs of your client gifts from your tax return! However (and here comes the bad news), it’s important to note that there is a $25 limit per client per year for gift giving.

The IRS acknowledges that incidental costs do not add substantial value to the gift and does not count these fees toward the $25 limit. Examples of these costs include packaging, shipping, and engraving fees.  

For example, let’s say you purchased flowers for a client’s birthday, and the total cost was $64.97, which includes $24.99 for shipping charges. These shipping charges are considered incidental costs. In this scenario, you could deduct $24.99 for shipping and $25 for gifts, and only $14.98 would be nondeductible.

How the heck do you track this throughout the year?

Keep it simple and classify the entire cost as a gift on your books but keep a separate spreadsheet for tax time. On your spreadsheet, make sure to note the total cost of the gift and any incidental costs included in that total. At tax time, your CPA can use your spreadsheet to adjust your books to ensure you are following IRS guidelines and not deducting more than you are allowed to!

PRO-TIP:  If your gifts are branded with your logo, you can classify these as advertising and marketing expenses.  There is no limitation to advertising and marketing expenses!  

Here are some examples of awesome (and usable) branded client gifts that can be used for marketing purposes:

• Coffee Mugs or Tumblers 
• Tote Bags (We love MB Greene bags!)
• Candles
• Sweatshirts and Hoodies
• Notepads or Journals

If you want someone to outsource client gifting to, you must check out Beth with Wood & Co. Studio!  She curates the most thoughtful, unique (branded) gift boxes!