If you give business gifts in the course of your trade or business, you can deduct the cost subject to the limits and rules in this chapter.

$25 limit on business gifts. You can deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.

A gift to the spouse of a business customer or client is generally an indirect gift to the customer or client. This rule does not apply if you have an independent bona fide business connection with the spouse and the gift is not intended for the other spouse's eventual use or benefit. These rules also apply to gifts you give to any other family member.

If you and your spouse both give gifts, both of you are treated as one taxpayer. It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

Incidental costs. Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit.

A related cost is considered incidental only if it does not add substantial value to the gift. For example, the cost of gift wrapping is considered an incidental cost. However, the purchase of an ornamental basket for packaging fruit is not considered an incidental cost of packaging if the basket has a substantial value compared to the value of the fruit.

Exceptions. The following items are not included in the $25 limit for business gifts.

1.An item that costs $4 or less and:

1. Has your name clearly and permanently imprinted on the gift, and
2. Is one of a number of identical items you widely distribute.

Examples include pens, desk sets, and plastic bags and cases.

2. Signs, display racks, or other promotional material to be used on the business premises of the recipient.

Employee achievement awards. Employee achievement awards are not treated as gifts. For information on the requirements you must meet to deduct the cost of these awards, see Bonuses and Awards in chapter 2 of Publication 535.

Gift or entertainment. Any item that might be considered either a gift or an entertainment expense generally will be considered an entertainment expense. However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift expense.

If you give a business customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can choose to treat the tickets as either a gift or entertainment expense, whichever is to your advantage.

You can change your treatment of the tickets at a later date, but not after the time allowed for the assessment of income tax. In most instances, this assessment period ends 3 years after the due date of your income tax return.

If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. You cannot choose, in this case, to treat the tickets as a gift expense.