Handbook / Business deductions

Business gift deductions for the 2026 tax year: the $25 rule and its exceptions

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

A thank-you gift to a good client or a referrer is a natural part of running a service business. The tax deduction for it, though, is small and has been fixed for decades. Knowing the rule helps you decide how to spend on appreciation and how to record it. This guide covers the business gift rules for the 2026 tax year, based on IRS Publication 463 (the 2025 edition, the latest available when checked in November 2026).

The $25 limit

Publication 463 says you can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year.

Key points:

• Per person, per year. Not per gift. Three gifts to the same client in one year share the same $25.
• Direct or indirect. A gift to a client's family member is generally an indirect gift to the client, unless you have an independent business relationship with that family member. A gift to a company intended for a particular person's use is generally an indirect gift to that person.
• Spouses count as one. You and your spouse are treated as one taxpayer for the limit, even with separate businesses.

A worked example

Publication 463 gives an example: you and your spouse give gift baskets to three business customers' families, costing $80 each, with no independent relationship with the family members. The deduction is $75: $25 x 3.

Example (2026 tax year): A freelance copywriter sends a $60 bottle of wine to each of four clients in December 2026, plus $15 shipping per gift. The deductible gift amount is $25 per client, or $100 in total. The shipping, as an incidental cost, is generally not counted toward the $25 limit and can be recorded separately.

What does not count toward the $25

Incidental costs. Publication 463 says costs such as engraving jewelry, or packaging, insuring and mailing, are generally not included in the cost of a gift for the limit. A cost is incidental only if it does not add substantial value. Gift wrapping is incidental; an ornamental basket worth a lot compared with the fruit inside is not.

Small branded items. Items costing $4 or less that have your name clearly and permanently imprinted and are one of many identical items you widely distribute, such as pens or bags, are not treated as gifts for the limit.

Signs and displays. Signs, display racks or other promotional material for use on the recipient's business premises are not treated as gifts.

These items may be deductible as other business expenses, such as advertising, if they meet the general rules.

Gift or entertainment?

Publication 463 says that any item that might be considered either a gift or entertainment will generally be considered entertainment, and entertainment expenses are generally not deductible. Its examples treat tickets to a ball game as entertainment.

There is one useful exception: if you give a customer packaged food or beverages that you intend them to use at a later date, the publication says to treat it as a gift. A box of chocolates or a bottle of wine sent to a client is therefore a gift subject to the $25 limit, while taking the client to a show is entertainment.

Gifts to employees

Gifts to employees follow different rules from client gifts and can count as taxable pay. If you have employees, ask a tax professional before giving them gifts or gift cards.

Records to keep

Publication 463's table of required records lists, for gifts:

• the cost of the gift
• the date of the gift
• a description of the gift
• the business purpose
• the business relationship of the recipient to you, such as name and occupation

Keep receipts and a short note for each gift. A simple list in your bookkeeping with these columns is enough. The guide on bookkeeping covers how to store receipts.

Where it goes on your return

On Schedule C, business gifts are generally reported as other expenses in Part V, with a description. The guide on Schedule C covers the form.

Is a gift worth giving?

Because the deduction is small, decide on gifts for business reasons, not tax reasons. Thoughtful, inexpensive gestures often matter more to clients than expensive ones. A handwritten note, a useful item, or a referral back can do as much for a relationship as a large gift. The guide on asking for referrals covers thanking people who send you work.

For 2026: $25 per person per year, incidental costs excluded, small branded items and displays excluded, entertainment generally not deductible, and a record for every gift.