Corporate gifts are a great way to celebrate your business’ success with the people who have been the most heavily involved, and those you want to thank. With one single item or present, you can make a lasting impression on your clients and employees that shows your company’s appreciation. It’s an effective B2B relationship management strategy.
If you’re new to corporate gifting, you probably want to know how much of it you can write off. Here’s a clear, plain-language breakdown of what the IRS actually allows, based on IRS guidance, before you set your gifting budget.
Are Corporate Gifts Tax Deductible?
Yes. You can deduct the cost of business gifts you give to clients, customers, or employees, up to $25 per person, per year. You can still spend more than $25 on a gift. You just won’t get to deduct anything past that amount, so your business covers the rest of the cost out of pocket.
To qualify, the gift needs to go to a direct customer, client, or employee, and it needs to ultimately benefit your business.
What Is Considered a Corporate Gift?
In the IRS’s eyes, a corporate gift is a physical item you give to a customer, client, or employee for business reasons, something they can hold onto. Think drinkware, apparel, tech accessories, and gift baskets.
A few things fall outside the “gift” category for tax purposes:
- Cash, gift cards, and gift certificates. These are treated like cash no matter the amount.
- Entertainment. Tickets or event admission you attend along with the recipient count as entertainment, not gifts, and aren’t deductible.
- Bonuses. Anything tied to performance is treated as pay, not a gift.
Knowing which category a gift falls into determines whether, and how, it’s deductible.
IRS Business Gift Deduction Limit
Here’s how the $25 rule actually works:
- You can deduct no more than $25 of the cost of a business gift given directly or indirectly to any one person during your tax year
- It covers indirect gifts too. If you gift a client’s spouse or a family member, that still counts against the client’s $25 limit. It doesn’t add up to a separate deduction.
- Spouses giving gifts together count as one giver. If you and your spouse both send a gift to the same person, you’re still capped at $25 total, not $25 each.
- Shipping and packaging usually don’t count against the $25. As long as they don’t add real value to the gift itself, costs like engraving or shipping are on top of the limit, not part of it.
- Gifts and entertainment don’t mix. If something could be seen as either a gift or entertainment, the IRS calls it entertainment — and entertainment isn’t deductible. So if you send a client event tickets and don’t go with them, it can usually count as a gift. If you go along, it becomes entertainment instead.
- Keep records. Note what the gift was, what it cost, when you gave it, and the business reason behind it.
For the full rules, see IRS Publication 463.
The $4 Exception for Bulk Branded Items
Separate from the $25 rule, there’s a carve-out for cheap, widely distributed branded items. A gift doesn’t count against your $25 limit at all if it:
- Costs $4 or less
- Has your business name permanently printed or engraved on it
- Is something you hand out regularly, not a one-time gift
Branded pens, keychains, and tote bags are the classic examples. Since these don’t count as gifts at all under this rule, they don’t eat into your $25 budget; you still have the full $25 left over for a bigger gift to that same person if you want to give one.
Can a Business Give a Gift to an Individual?
Yes, this is exactly what the $25 rule is designed for. Businesses give gifts to individual clients, customers, and employees all the time. What matters isn’t whether the recipient is a person (they always are). It’s whether the gift goes straight to that person or indirectly through someone connected to them, like a spouse. Either way, the same $25 cap applies per relationship.
Can a Business Gift Money to an Individual?
You can give money to someone, but cash and cash-equivalents, including gift cards, are never treated as tax-free “gifts” by the IRS, no matter the amount.
- To employees: cash and gift cards count as wages. They go through payroll, show up on the employee’s W-2, and get taxed like regular pay.
- To non-employees (clients, referral partners, contractors): cash payments are generally treated as reportable income for the recipient, separate from the gift rules entirely.
This is the main reason the $25 deduction and the $4 exception only apply to physical items not money.
Strategize Your Gift-Giving
There are some methods to consider before running to the mall to get a bulk order of $25 or fewer gifts for everyone. You want to think about your business brand and how a gift can represent it.
Remember that the entire purpose of your corporate gift-giving is to show your employees, clients, customers, and donors that you recognize their contributions to your business, and you are grateful for every one of them. You must be thoughtful and selfless when starting your business gift brainstorming and making your choices.
Presentation will matter. That is why you should consider customizable options that are consistent with your company style and colors, while keeping them personal.
A few ways to make your gift-giving more effective within the $25 limit:
Give Gifts That Will Last
Consider items that will be valuable in your receivers’ households or office spaces and other settings in their day to day lives. A long-lasting gift represents your own company’s endurance and quality. It also indicates an ongoing positive, reliable impression on your team and clients.
Give Year-Round
Who said you could only give during the holidays? Surprise your team and clients with spontaneous gifts throughout the year. The random rewards will truly showcase your company’s care.
Opt for something sweet that’ll offer the sugar kick they need any time of year. Check out our entire collection of food and candy gifts that come in customizable packaging, so those trying them know that your business has good taste.
Offer Something They Can Use Daily
By investing in a business gift that is also a useful everyday item, your company will always be at the front of your staff, client, and customers’ minds. A high-quality Moleskine Pocket Notebook Gift Set will allow them to keep a note of your company at all times. If they need any services that you offer, they’ll know to come to you. There are a wide array of customization options here, including:
- Screen printing
- Full color printing
- Laser engraving
- Debossing
- Hot stamp printing
Long-Term Benefits of Giving Business Gifts to Your Employees
By simply recognizing your employees’ hard work, you will find them more motivated to be productive and continue helping your business earn its high profits. This will furthermore improve your reputation to obtain top talent in the industry and keep them long-term. Employee satisfaction is vital for maintaining a team that is of high quality and dedicated to your success.
While a cash bonus is a great way to show thanks, it’s been proven that a tangible gift is more valuable than money for promoting continued productivity. Receiving an item that their employer purchased, prepared, and placed in their hands is more effective than simple money. The thoughtfulness and personal touch of a corporate gift are enough to inspire your employees to work efficiently and improve staff turnover rates.
Do You Provide Bulk Orders for Corporate Gifting Purposes?
Yes. iPromo supports bulk ordering across our full catalog of branded merchandise and corporate gifts, with pricing that scales based on the product and quantity selected. If you’re outfitting a large team or client list, you can also request an RFP, and our team will put together pricing and product recommendations for your specific order.
To get started on your next corporate gift order, bulk or otherwise, visit iPromo to browse customizable, budget-friendly options that fit within your gift tax deduction limits.