Business Gifts

Woody is a carpenter who recently worked on a great remodeling project booked through taskrabbit. Since the woman who hired him was such a pleasure to work with, Woody purchased her an $80 gift basket upon completion of the project. When Woody prepares his federal tax return, even though he spent $80 on the basket he will only be able to deduct $25 on line 27a of his Schedule C since the business gift deduction is limited to $25 per person.

Dorothy is a freelance writer who creates content for a blog and two major online magazines. To thank her clients for the steady stream of work they provide, on separate occasions she chose to take of her each editors to a basketball game, tickets to which cost $60 each (face value). She also purchased each editor a $23 holiday gift bag. When Dorothy prepares her taxes she should deduct $180 ($60 x 6 tickets x 50% limit) as an entertainment expense (since she attended the basketball games) on line 24b of her Schedule C, and $69 ($23 x 3) as a gift expense on line 27a of her Schedule C. Note that since her gift bags were less than $25, her deduction is not limited.

Pauly, a freelance knife maker recently fulfilled a large knife order for a new client. In addition to delivering the knives, for no additional cost he also provided his client a custom display case he spent $550 on. Since the display case is a promotional item intended to be used on his clients premises, Pauly is not subject to the $25 gift limit and the full $550 would be deductible on his Schedule C.

Cecelia is a freelance photographer who regularly works with two celebrity clients who are extremely loyal to her. For the holidays, Cecelia printed and framed her favorite pictures from the year and sent them to her two loyal clients. The printing was free, the frames cost $25 each, engraving an additional $5 and shipping $8 for a total gift cost of $38. Since the engraving and shipping costs could be considered incidental (did not add substantial value to the gift), Cecelia could deduct the full $38 for each gift as business expense.