Are Client Gifts Tax Deductible?
Here's what the IRS allows and where branded gifts fit
By Michael Athens · Last updated September 24, 2026 · Rules reviewed against IRS.gov
Short answer: Yes, business gifts are deductible, but the IRS limits the deduction to $25 per person per tax year. Shipping, engraving, and packing usually don't count toward that limit. Gifts to employees follow different rules, and gift cards to employees are taxable. Branded promotional items can be treated differently. Confirm the details with your tax professional.
Most businesses today realize that appreciating people through gifting can be a powerful tool at their disposal to create or deepen a connection with a client or a prospect.
For many just starting down the path to gifting they have questions like:
- "Are business gifts tax deductible?"
- "How much can you write off on a client gift?"
- "What gifts are fully deductible?"
- "What makes a good client gift?"
Other businesses like Realtors and mortgage lenders are EXPECTED to give a client gift (also known as a closing gift) and thus have been giving them out by the hundreds. Unfortunately they often gift with no real knowledge of how much they are allowed to deduct per gift, or how their CPA is categorizing the gift or if they're doing it correctly.
So to start off...
Can You Deduct a Gift for a Client, Prospect, or Employee
If you give business gifts in the course of your trade or business, you can deduct all or part of the costs subject to the following limitations:
- You deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during your tax year.
- If you and your spouse both give gifts to the same person, both of you are treated as one taxpayer.
- 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.
- Any item that could be considered either a gift or as entertainment is generally considered entertainment and cannot be deducted.
- You need to have records that prove the business purpose of the gift as well as the details of the amount spent.
What does this mean for gifts for Clients and Prospects?
So there you have it, you can only spend $25 on a client gift...
...Wait what? that's totally ridiculous!
Could you imagine a real estate agent selling a $500,000 house turning around and saying "Hey Mr. and Mrs. Jones, thanks for the $15,000 commission, here's $25 to Chili's!"
This number seems arbitrarily low considering this amount wouldn't even cover two movie tickets today. The problem is that the limit was set in 1962 and hasn't been changed since!
To put that into perspective, $25 in 1962 would be worth $277 in today's dollars based on inflation. Which would fit for most businesses, but until this law is changed, business owners and salespeople around the nation are stuck with a few bad choices.
- Spend $25 or less per client, and be thought a cheapskate
- Spend more than $25 per gift, while only being able to deduct the first $25
- Spend more, deduct it all, and pray you don't get caught.
I definitely don't suggest option 3. I've personally met with a half dozen people who had been deducting the full cost of their gift (without knowing they weren't supposed to) and upon being audited, they were forced to pay extra for every gift they had given a client over the past 3-5 years!
Luckily there are a few minor exceptions...and one big one
Gifts to a business
The $25 limit applies only to gifts directly or indirectly given to an individual. Gifts given to a company for use in the business aren’t subject to that $25 limit.
Gifts to a married couple
If you have a business connection with both spouses and the gift is for both of them, the $25 limit doubles to $50. I have been told before that to be safe it should technically be two $25 gifts.
Incidental costs of making a gift
Incidental costs aren’t subject to the $25 limit. For example, the costs of custom engraving, packing, insuring and postage on a gift are deductible in addition to the $25 limit for the gift itself.
It's important that you know you need to document all of this spending. Be sure to track the qualifying expenses separately (typically by charging them to a separate account in your accounting records so that a full deduction can be claimed.) In addition, its best practice to keep track of a description of the gift, the gift’s cost, the date the gift was purchased, the business purpose of the gift, and the business relationship to the taxpayer of the person receiving the gift.
You may be thinking, "Okay, well that gets me to $50 for a couple plus the cost of incidentals, but that doesn't make a huge impact." Well friends, here's where the real opportunity is...
How to Deduct 100% of Your Gifts
The main problem is that until the IRS changes the business gifts deduction from $25 to something more reasonable for this decade, people will be stuck wasting money on "gifts."
So what other ways can you appreciate you clients that are 100% deductible?
The answer becomes, don't give them a "gift," give them branding. By giving the client something that is permanently branded with your information,your gift is no longer a gift. It may qualify as promotion or advertising, which isn't subject to the $25 gift limit (see our CPA's letter below)."
So then the question becomes, "How do you get a client something branded that they will actually appreciate?"
Ready to see what this looks like? Browse our personalized gifts, shop on-hand gifts, or see how we personalize gifts.
Branding a gift, doesn't mean it can't be
Personal, Valuable, or Meaningful.
Find something your clients will love forever and use day in and day out. Then have it tastefully branded with your information.
Also, consider going the extra mile to brand it with the client's information as well. Now, not only are you honoring yourself and your bank account but you're able to really make an impact on you clients because as Dale Carnegie says, “A person's name is to him or her the sweetest and most important sound in any language.”
Our clients often ask whether branded gifts are treated differently from ordinary gifts. A California CPA who advises our clients explains that while the IRS caps gift deductions at $25 per recipient per year, an item permanently imprinted with the giving business's name can qualify as advertising, and advertising expenses aren't subject to that cap. He points to IRS Publication 535 on this. This is one CPA's professional opinion, not IRS guidance, so confirm how it applies to you with your own tax professional. His letter is below.
| Type of gift | Deduction for your business | Taxable to the recipient? |
|---|---|---|
| Gift to a client or prospect | Up to $25 per person per tax year. Shipping, engraving, and packing generally aren't counted toward the limit. | No |
| Gift to a married couple | Generally up to $50 if you have a business relationship with both spouses. | No |
| Gift to a company, for use in the business | The $25 per-person limit doesn't apply. | No |
| Item costing $4 or less, permanently imprinted with your business name | Excluded from the $25 gift limit under IRS rules. | No |
| Larger item permanently imprinted with your business name | Can qualify as advertising rather than a gift, per a CPA who advises our clients (see IRS Publication 535). Confirm with your tax professional. | No |
| Employee gift of tangible property (flowers, fruit, small holiday gifts) | Deduction limited to $25 per person, as with client gifts. | Generally no, if it qualifies as a de minimis fringe benefit. |
| Employee gift card or cash | Fully deductible as compensation. | Yes. You must withhold payroll taxes. |
| Employee service or safety award of tangible property | Up to $400 per employee per year. Service awards can't be given in the first 5 years or more often than every 5 years. Safety awards can't go to more than 10% of employees in a year. | No, if it qualifies. Cash, gift cards, meals, and tickets don't qualify. |
Informational only. Confirm your situation with a tax professional.
Gifts for Employees
Giving a gift to an employee is in some ways more complicated than gifting to a client. This is because you not only have to ask the question, "Can I deduct this gift?" but also "will my employee have to pay taxes on this gift?"
The important facts in figuring this out are related to the form of the gift and the value.
If the gift is considered taxable income to the employee, you are required to withhold all applicable federal and state income and payroll taxes. You must also pay other employment taxes, such as federal and state unemployment taxes on these amounts.
TANGIBLE PROPERTY: Gifts of property are not considered taxable income to employees as long as they fall under the definition of a "de minimis fringe benefit."
According to the IRS, a de minimis fringe benefit is a gift “for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable and impractical.”
This might include:
- Occasional snacks, coffee and doughnuts
- Occasional tickets to a concert or sporting event
- Holiday or birthday gifts with a low fair market value, such as flowers, fruit, books, etc.
The IRS does not specify a maximum dollar amount for excluding de minimis fringe benefits from an employee’s taxable income, but the business is still subject to the same $25 maximum deduction as when gifting to a client or prospect.
GIFT CARDS AND CERTIFICATES: Gift cards and gift certificates areconsidered taxable income to employees because they can essentially be used like cash. The cost of the gift card is fully deductible to the business, but you must withhold taxes from the employee’s pay for these gifts.
AWARDS: You can deduct up to $400 of the cost of employee safety and service awards of tangible personal property (such as a watch, or knife engraved with "Sharpest Employee of the Year" 😉) for each employee for each year.
Applicable awards are not taxable income to employees, but they must be limited. For service awards, they cannot be given during the first five years of the employee’s service and no more often than every five years. Safety awards cannot be given to more than 10% of employees during the same year. The Tax Cuts and Jobs Act of 2017 (TCJA) clarified that awards of tangible personal property cannot include cash, cash equivalents or gift cards, vacation, meals, lodging, theater tickets, sports tickets, stocks, bonds or similar investments.
When you record gifts to employees in your books, if the gift must be included in the employee’s taxable compensation, post it to the same account to which you’d post their salary, wages or bonuses. If the gift is not considered compensation, record it under “employee incentives.”
Basically, unless it's considered an award and less than $400, the same principle applies here as it does for clients. Give them something useful and high quality that's BRANDED to the businessso that it may qualify as advertising, which isn't subject to the $25 limit.Once again personalizing the messaging to the employee makes it so that the client overlooks the company branding and allows it to become a legacy item to the family.
Download our free Creating Raving Fans Guide
Client Gift Tax Deduction FAQ
Are client gifts tax deductible?
Yes, but the IRS limits the deduction for business gifts to $25 per recipient per tax year. You can spend more, but you can't deduct the part above $25. Keep records that show the business purpose of each gift.
How much can you write off on a client gift?
$25 per person per year. Incidental costs like engraving, packing, insuring, and shipping generally aren't counted toward the limit if they don't add substantial value to the gift. For example, a $25 gift plus $20 for wrapping and shipping gives you a $45 deduction. Permanently branded items may be treated as advertising instead. See the branded gifts answer below.
Does the limit double for a married couple?
If you have a business relationship with both spouses and the gift is for both, the limit is generally $50. Many advisors suggest documenting it as two separate $25 gifts to be safe.
Are gift cards tax deductible?
Gift cards to clients fall under the same $25 limit. Gift cards to employees are taxable compensation. The cost is deductible, but you must withhold payroll taxes.
Are branded gifts fully deductible?
The IRS caps business gift deductions at $25 per person per year, but advertising isn't subject to that limit. A CPA who advises our clients explains that an item permanently imprinted with the giving business's name can qualify as advertising, which is deductible as an advertising expense (see IRS Publication 535). Whether a specific item qualifies depends on the facts, so confirm with your own tax professional.
Are gifts to employees taxable?
Small, occasional gifts of property, like flowers, fruit, or a holiday item, usually qualify as de minimis fringe benefits and aren't taxable to the employee. Cash and gift cards are taxable. Qualifying safety and service awards of tangible property can be deducted up to $400 per employee per year.
Do real estate agents have special rules?
The same $25 deduction limit applies. In addition, the Real Estate Settlement Procedures Act (RESPA) prohibits giving or accepting anything of value in exchange for referrals of settlement-service business. Closing gifts to clients are common, but a gift must never be tied to or conditioned on a referral. Check with your broker or compliance officer.
What records should I keep?
The gift description, cost, date, business purpose, and the recipient's business relationship to you. Track gift spending in a separate account in your books.
About the author
Michael Athens is the founder of Retention Gifts (Gifts with an Edge), where he helps home service businesses design branded client and employee gifts. He has worked in corporate gifting for 13 years. Michael is a gifting specialist, not a tax professional, and this page is educational, not tax advice. The branded-gift guidance draws on a letter from Standard Accounting, a California CPA firm.