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Business Gifts - Are Gifts to Clients Tax Deductible?

With the holiday season in full swing, here is a reminder on the limited deduction for business gifts.

Generally, gifts made by a taxpayer to a customer, client, business contact, or employee are deductible, subject to a $25 per individual limitation per year. This limit was imposed in the 1960s and never updated for inflation.

If a customer is given tickets to a theater performance or sporting event, and the taxpayer does not go with the customer to the performance or event, the cost of the tickets can be treated as either a gift expense or an entertainment expense, whichever provides the greater tax advantage. However, since Tax Reform has eliminated entertainment deductions it’s best to classify tickets as gifts subject to a $25 limit.

Incidental costs such as engraving, packing or shipping aren't included in the $25 limit if they don't add substantial value to the gift.

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Richard Pon CPA, CFP