If you give gifts as a part of your business, you may be able to deduct part or all of the cost. The IRS, however, has very specific rules for what constitutes a gift and what does not.
Instructions
1. Keep receipts for all gifts you give for business purposes. These receipts will help you to prove your deductions if you are ever audited.
2. Track your business gifts throughout the year so you don't have to go through all of your receipts individually at tax time. You should record who the gift was given to, what that person's relationship is to your business and how much the gift cost.
3. Deduct up to $25 in business gifts for each person you give to. The $25 rule means that if you give a gift that exceeds $25, you can only deduct $25 total. If you give multiple gifts that add up to under $25, you can deduct the total cost.
4. Determine whether your gift meets the entertainment exception. Tickets to concerts or sporting events, for example, can be considered either a gift or an entertainment expense. Entertainment expenses are not restricted by the $25 rule, but only 50 percent of the total cost is deductible.
5. Separate gifts to employees from incentives. If you regularly offer employees incentives in the form of merchandise, you may be able to make a claim that these gifts are ordinary and necessary to your business. In these cases, such gifts are fully deductible, but you'll need to back up your claim with documentation if audited.
6. Use Part V "Other Expenses" of the Schedule C tax form from the IRS to list your gift deductions (see Resources below).
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