Quick answer
In the US, a business can deduct up to $25 per recipient per tax year for business gifts. Incidental costs such as engraving, packing and shipping are not counted toward that $25 as long as they don't add substantial value to the gift. Anything above the limit is still a perfectly good gift; it just isn't deductible.
The $25 limit surprises almost everyone the first time they hear it. It has not moved since the 1960s, while what a decent gift costs certainly has. Here is how the rule works in practice and how to plan client gifts with it in mind.
The Rule in Five Points
$25
Maximum deduction per recipient, per tax year, across all gifts to that person.
Separate
Engraving, packing and shipping, if they don't add substantial value.
$4
Branded items at or under this, handed out widely, don't count toward anyone's $25.
- One limit per person, not per gift. Three $20 gifts to the same client in one year still cap at $25 total.
- Spouses count as one giver. If you and your spouse both give to the same person, you share one $25 limit.
- Gifts to a client's family are generally treated as indirect gifts to the client, unless that person has their own business relationship with you.
- Gift or entertainment? Items that could be either, like event tickets, are generally treated as entertainment, which follows different rules.
- Records matter. Keep the date, the cost, a description of the gift, and the business purpose for each recipient.
A Worked Example
Say you send a client a personalized leather pen case with their initials engraved, shipped to their office.
| Cost item | How it's treated |
|---|---|
| The pen case itself | Counts toward the $25 limit; the excess isn't deductible |
| Initials engraving | Generally an incidental cost, outside the $25 |
| Gift wrap / packing | Incidental, outside the $25 |
| Shipping | Incidental, outside the $25 |
Why this matters for personalized gifts: because engraving is usually treated as incidental, personalizing a gift typically doesn't eat into the $25. Ask for engraving to be itemized on the invoice so your records show it separately.
So Should You Just Spend $25?
Not necessarily. The $25 is a ceiling on the deduction, not on what you're allowed to give. Most businesses decide the gift budget on relationship value first and treat the deduction as a small offset. A $25 gift that gets thrown away saves you a few dollars in tax; a gift the client keeps on their desk for five years keeps working long after.
The deduction caps what the IRS shares. It doesn't cap what the gift is worth to the relationship.
Client Gifts That Earn Their Keep
For more options by price point, see 5 client appreciation gifts under $100 and corporate gift budgets at $50, $100 and $200.
What About Gifts to Employees?
Employee gifts follow different rules from client gifts. Cash and gift cards to employees are generally treated as wages, and tangible awards for things like length of service have their own set of rules. If you're planning team gifts, talk to your payroll provider or accountant first. Our guides to work anniversary gifts and gifts a manager can give the team cover the gift side.
In Regulated Industries
Some professions have gift limits on top of tax rules. Broker-dealers, for example, follow FINRA's gift rule, which recently changed. See what the $300 FINRA gift rule actually covers.
Frequently Asked Questions
Is the $25 limit per gift or per person?
Per person, per tax year. Every business gift you give that individual during the year is added together against the same $25.
Does engraving count toward the $25?
Under IRS guidance, incidental costs such as engraving, packing and shipping aren't included in the $25 limit if they don't add substantial value to the gift. Keep them itemized.
Are gift cards to clients treated the same way?
Gift cards to clients are generally business gifts subject to the same $25 per recipient cap.
What records should I keep?
For each gift: who received it, the date, a description, the cost, and the business reason. An itemized invoice that separates the item, engraving and shipping makes this easy.
Source: IRS guidance on business gift deductions (Publication 463 and the IRS "Are business gifts deductible?" FAQ). This article is general information, not tax advice.
Client gifts worth more than the deduction
Personalized leather, single or in bulk. Free US shipping on orders over $80.
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