Gifts to Clients and Staff: The $25 Deduction Cap
Why a thank-you gift to a client is mostly nondeductible, what does not count toward the limit, and how gifts to employees are taxed.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
A business can deduct no more than $25 per recipient per year for gifts to clients, customers, or other business contacts. The limit dates from 1962 and is not adjusted for inflation. Incidental costs such as engraving and wrapping generally do not count, and widely distributed items costing $4 or less imprinted with the company name are fully deductible.
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What counts toward the $25 limit?
| Item | Treatment |
|---|---|
| Gift basket to a client | Deductible up to $25 per recipient |
| Wrapping, engraving, insuring, mailing costs | Fully deductible and not counted in the $25, unless they add substantial value (an ornamental basket worth much more than the fruit) |
| Pens, mugs, or calendars costing $4 or less, with your name clearly and permanently imprinted, one of many identical items distributed widely | Fully deductible |
| Signs, displays, or promotional materials used on the recipient's premises | Fully deductible |
| Gift to a company for general use by its staff | Generally not limited to $25 per person, if not intended for specific individuals |
| Gift given to a client's spouse | Treated as a gift to the client (one $25 limit) |
| Tickets you give a client and do not attend | Can be treated as a gift ($25 limit) |
| Tickets you attend with the client | Entertainment — nondeductible |
How are gifts to employees handled?
Gifts to employees are generally deductible as compensation, but they are taxable wages to the employee unless an exclusion applies:
- De minimis fringe benefits — a holiday turkey, an occasional small item. Cash and cash equivalents such as gift cards are never de minimis, however small (occasional overtime meal money or local transportation fare aside).
- Employee achievement awards — tangible personal property (not cash, gift cards, vacations, meals, tickets, or securities) given for length of service or safety, up to $400 per employee per year, or $1,600 in total when qualified plan awards under an established written, nondiscriminatory plan are included.
- Everything else — gift cards, cash bonuses — goes through payroll.
How do you document gifts?
Record the cost, date, description, the recipient's name and business relationship, and the business reason. Keeping a simple year-end list with these details is usually enough.
Is there a way to deduct more for client appreciation?
A client event open to the public, or a meal with a business purpose that meets the meal rules, follows different rules from a gift. Charitable donations made in a client's honor are not business gifts, but deductible charitable contributions are subject to their own limits and go on the owner's return for pass-through businesses.
Frequently asked questions
Does the $25 limit apply to each gift?
No. It is per recipient per year, regardless of how many gifts.
Are gifts to referral partners deductible?
Yes, within the $25 limit. A payment for referrals under an arrangement is a referral fee instead, deductible in full and reportable on Form 1099-NEC once payments to that person reach $2,000 for 2026 ($600 for 2025 and earlier).
Do gift cards to clients count?
Yes, as gifts subject to the $25 limit.
Can a partnership claim $25 per partner?
No. A partnership and its partners are treated as one taxpayer for the limit; spouses are also treated as one, even if each has a separate business.
Official sources
The IRS explains: “You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year.” — Internal Revenue Service, Publication 463 (2025), Travel, Gift, and Car Expenses, https://www.irs.gov/publications/p463
The IRS explains: “You can generally exclude the value of achievement awards you give to an employee from the employee’s wages if their cost isn’t more than the amount you can deduct as a business expense for the year. The excludable annual amount is $1,600 ($400 for awards that aren’t “qualified plan awards”).” — Internal Revenue Service, Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits, https://www.irs.gov/publications/p15b
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk books gifts, awards, and promotional items in the right categories. See pricing or book a free fit call.
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