How to Calculate Business Gifts in Tax Deductions

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Gifts with a promotional or marketing purpose are generally excluded from the $25 limitation.
Gifts with a promotional or marketing purpose are generally excluded from the $25 limitation. (Image: Purestock/Purestock/Getty Images)

The Internal Revenue Service imposes strict limitations on deducting business gifts. With limited exceptions, a business may only deduct a maximum of $25 per recipient in business gifts. To calculate deductible business gifts, sum the gifts given to recipients who received less than $25 total and add a $25 maximum for the other recipients. Also include the value of any gifts that qualify for an exception from the gift limitations.

Exceptions to the Gift Rule

Create a list of deductible business gifts. First, identify gifts in the business gift account balance that are excluded from IRS dollar limits for this category. According to IRS Publication 463, you can always deduct any gift that cost $4 or less if the item has your name on it or is a widely distributed item. Any promotional materials given to other companies to be displayed may also be deducted. For example, say you gave away $400 worth of reusable bags with your company logo and $600 worth of company posters. Add $1,000 to the list and label the amount as "gifts that qualify for an exception."

Less Than $25

Itemize all business gifts from the year by recipient. Next to each recipient, write the total dollar value of all business gifts. Identify all recipients who received less than $25 in gifts and sum the total dollar value of their gifts. For example, say that you gave 10 customers gifts valued at $20 each throughout the year. Add $200 to your list of deductible business gifts and label it as "recipients who received less than $25."

More Than $25

Count the remaining number of recipients who received more than $25 in gifts. The maximum tax deduction you can take for each of these recipients is $25. For example, say you gave more than $25 in gifts to 30 customers. Add $750 to your list of deductible business gifts and label the amount as "recipients who received more than $25."

Record the Deduction

Sum the figures in your list of deductible business gifts and record the total on your tax return. In this scenario, deductible gifts are the sum of $1,000, $200 and $750, or $1,950. Record $1,950 as business gifts in the deductions section of your business tax return. Business tax forms don't have a unique line item for business gifts, so include the amount in the "other deductions" line item. In the corresponding "other deductions" statement, label the $1,950 as "business gifts adjusted for limitations."

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