Every holiday season, businesses send gift baskets, gourmet treats, and thoughtful tokens of appreciation to customers, referral partners, and colleagues. These gestures strengthen relationships, open doors for future collaboration, and keep your brand top-of-mind.

But when it comes to deducting the cost of those gifts, the IRS has one message for you:

“$25 only.”

Yes, you read that correctly. According to the IRS, you may deduct business gifts up to just $25 per recipient per year

And if you’re wondering whether that limit feels like it belongs in another era… that's because it does.

A Limit Stuck in 1962

The $25 business-gift deduction limit was enacted in 1962—and unbelievably, it has never been adjusted for inflation

To put that year in perspective:

• A Ford Galaxie cost $2,645

• Gas was 31 cents per gallon

• A postage stamp was 4 cents

• Minimum wage was $1.15 per hour

If the IRS had simply adjusted the gift limit for inflation, today’s equivalent would be about $268—more than 10 times the current rule

Yet here we are, more than 63 years later, stuck with the same outdated cap, even as countless new tax laws claim to focus on “fairness” and “reform.”

Are Business Gifts Still Deductible? Yes—But With Strings Attached

You can deduct business gifts such as holiday baskets, but the IRS enforces the $25 limit per recipient per year

Even if your gift costs $80, your deduction is still capped at $25.

A few nuances:

• If you work independently with both a husband and a wife, each gets their own $25 limit.

• Incidental costs (custom engraving, wrapping, packaging, insurance, delivery) do not count toward the $25, as long as they don’t add substantial value to the gift.

• Sales tax can also be considered incidental and therefore excluded from the cap.

How to Properly Document Your Business Gift

To protect your deduction, the IRS requires you to record the following five details for each gift you give:

1. Cost of the gift

2. Date of the gift

3. Description of the gift

4. Business purpose

5. Business relationship to the recipient

Fortunately, explaining the business purpose is straightforward:

• For colleagues → maintaining cooperative relationships

• For referral partners → encouraging continued referrals

• For customers → strengthening loyalty and future business opportunities

Why This Rule Needs Modernization

With inflation, economic changes, and evolving business practices, the $25 limit no longer matches real-world costs. Business gifting today involves:

• Branded merchandise

• Curated holiday bundles

• Customer appreciation packages

• Referral thank-you gifts

Yet the tax code treats all of these as if they were inexpensive trinkets from the early 1960s.

Updating the limit to a more realistic figure—such as the inflation-adjusted $268—would bring long-overdue fairness and practicality to tax compliance.

What Can You Do? Two Practical Paths Forward

1. Encourage Lawmakers to Update the Limit

If you believe the $25 cap is outdated, you can contact your congressional representatives and urge them to revise IRC Section 274(b).
(Visit the House or Senate websites to find your representatives.)

2. Keep Gifts at or Below $25 to Maximize Deductions

Until the rule changes, the safest strategy is to choose gifts within the limit—remember, incidental costs don’t count toward the cap

Final Thoughts

Business gifts remain a powerful relationship-building tool. While the IRS’s archaic $25 limit may feel frustrating, understanding how it works—and how to document your gifts properly—helps ensure you’re compliant and maximizing your deductions.

And who knows? With enough pressure, perhaps lawmakers will finally bring this 63-year-old rule into the modern era.