During the holiday season, many business owners send gift baskets to colleagues, referral sources, and select customers to stay top-of-mind. The catch: the business gift deduction limit 2025 is still stuck at $25 per recipient per year—a number that dates back decades. This business gift deduction limit applies no matter how large or profitable your business is.
Yes—gift baskets (and other business gifts) can be deductible under the business gift deduction limit 2025. But the IRS generally limits your deduction to $25 annually for each recipient. If the total cost of all your business gifts to one individual during the taxable year exceeds $25, you may deduct only $25.
Important nuance: If you have an independent business relationship with both spouses (for example, you do business with each of them separately), the $25 limit applies separately to each person as the recipient.
To support the deduction, write down these five facts for each gift:
You’ll find it easy to document the business purpose and the business relationship. Examples of business purpose:
You might ask: “Why such a low limit? Twenty-five dollars buys almost nothing.” That’s true. The $25 limit is the original limit enacted in 1962 and it has never been updated for inflation.
When adjusted for inflation, that 1962 amount would be far higher today. But practically speaking, the current law is still the current law.
The best solution would be for lawmakers to exercise common sense and update this rule for inflation. The $25 limit lives in Internal Revenue Code Section 274(b).
The second-best solution is to spend very little money on the gift itself—keep gifts at or under $25 per recipient so you can deduct the entire amount.
Keep in mind: the limit generally applies to the cost of the gift, but certain incidental costs (for example, packaging, insurance, and mailing or delivery) may be treated differently if they don’t add substantial value to the gift.
Here’s the practical takeaway: custom gift wrapping is typically incidental, but an ornamental basket that has substantial value on its own may be treated as part of the gift cost (meaning it can push you over the limit).
For additional IRS guidance on the $25 business gift deduction rule and incidental costs, see the IRS FAQ here: Can I deduct business gifts, and what's the limit?
Let’s say you send a holiday basket to Jordan (a referral partner). The basket costs $79. You also pay $18 for shipping and insurance.
Business gifts are just one small line item—but they often come up at year-end. If you’re doing other year-end moves (timing income, prepaying expenses, equipment purchases), make sure gifts are handled correctly in the mix. If you need a refresher on year-end tactics, see: Year-End Tax Moves Before December 31 to Keep More Money.
And if you’re building out your full deductions playbook (home office, travel, meals, etc.), bookmark: Small Business Tax Deductions: Ultimate Guide for 2025.
If you want to make sure deductions like business gifts are handled correctly—and aligned with your bigger tax picture—this is where we help.