🎁 Holiday Gift Deductions

Can You Deduct Holiday Gift Baskets?

A Fullerton–focused guide for business owners navigating the IRS’s outdated $25 limit on gifting to colleagues, referral partners, and customers.

IRS Gift Deduction Rules

You plan to send holiday gift baskets to colleagues, referral partners, and select customers, and you want to deduct the cost. You can take a deduction, but the IRS limits you to $25 per recipient per year.

This rule comes straight from 1962, and lawmakers have never increased the limit—even though real-world prices have climbed dramatically over the past six decades.

You may give a much more expensive basket if you choose, but you can deduct only the first $25. If you maintain separate business relationships with both spouses, you may deduct $25 for each person.

The IRS does not let you treat higher-value packaging or decorative containers as “incidental,” so those items count toward the $25 cap. However, you may treat shipping, sales tax, and basic wrapping as incidental because they do not add significant value to the gift.

To protect your deduction, you must keep simple records. For each gift, write down the cost, the date, the description, the business purpose, and your business relationship with the recipient. You can easily explain the business reason: you strengthen colleague relationships, encourage referrals, and maintain customer loyalty.

The real problem comes from the outdated limit. A $25 cap from 1962 equals roughly $268 today when you adjust for inflation. Meanwhile, everyday costs from cars to postage have increased many times over. Congress never updated this rule, and it now creates an unfair result for business owners who want to maintain normal professional relationships during the holiday season.

You have two practical options: First, you can urge lawmakers to fix this problem. A simple inflation adjustment would bring the deduction cap into modern reality. Second, you can choose to keep each gift at or below $25 and guarantee a full deduction. Many business owners take this approach and focus on thoughtful but modest gifts.

Need help planning year-end business deductions?
Tandy Consulting Inc. supports small businesses throughout Fullerton and Orange County with tax-smart strategies for holiday gifting and year-end planning.
📅 Book a year-end tax review

Who This Applies To

• Local businesses sending holiday gifts

• Referral-based businesses

• Service providers with recurring clients

• Real estate, consulting, and professional practices

In Fullerton and across Orange County, gift baskets are a popular year-end practice—but the IRS limit applies no matter the local market cost.

Checklist Before Buying

• Is the total value at or under $25?

• Does gift wrap add value? (Most does NOT.)

• Are you tracking who receives what?

• Is shipping separate from value-added items?