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In the USA-IRS milieu,

Consider these two examples: Sally is self-employed. Her business has various clients.

So in the new tax year 2018 under whatever rules apply in 2018,

  • Sally flies to Japan to see a large client. Sally purchases $50 of chocolates to take and distribute to the team (say, 5 people), since they like US chocolate.

  • Sally has a large client in California. At Xmas she sends the three principals each a $100- bottle of liquor. It is 120- each including Fedex.

In both cases they are completely real clients, each spending six figures to Sally during the business year.

What's the deal on this in the US ... is it a deductible expense?

(I've noticed around the world, different national authorities see "business-gifts" as either a disallowed complete scam, or totally normal. What's the US situation?)

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3 Answers 3

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Strictly speaking, business gifts are limited to a deduction of $25 per person per year, though shipping can be tacked on top of that. So,

  1. $50 in chocolates for a team would be $10 per person - fully deductible.
  2. $100 bottle plus $20 shipping each would be $25+20 = $45 deductible each per person.

Note that #1 is a little more gray in that it isn't necessarily for a particular person. It could probably have been a business to business gift, in which case the amount isn't capped at $25 per person. But if you provided cakes for the entire company you're crossing the line into "meals and entertainment" which prior to this year would have been deductible at 50%, but now after the tax law changes most signs point to interpreting it as no more meals and entertainment deductions at all.

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See chapter 11 of the IRS Publication 535, Business Expenses, especially the sections "Meals and Entertainment", and "Bribes and kickbacks"

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The meals, entertainment, and gifts were part of form 2106, which totaled, and then were deductible to the extent they exceeded 2% of MAGI. This isolated event isn’t going to total enough to be a deduction at all.

In 2018, I don’t know if this deduction is even still in the code.

Even a salesman who is always out with clients is likely not to have this deduction, as legitimate expenses are most often reimbursed by the company. A chip designer away on business? Should be submitting an expense voucher and getting reimbursed for all expenses. Except the strip clubs. Submit for 2 drinks per client, and that’s it, no expensive champagne, no table dances. If you want to keep your job.

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  • Hmm, this is about a self-employed person, as it says. A business, as it were. Dealing with various of her clients. Question is about a business asserting costs to the IRS. (Not an employee filling in "expenses" to their corporation - perhaps I misunderstood you.)
    – Fattie
    Commented Apr 22, 2018 at 19:10
  • Hmm. So a 1099 self employed chip designer? I suppose, just never heard of one.
    – JTP - Apologise to Monica ♦
    Commented Apr 22, 2018 at 19:14
  • hi @joeTaxpayer, surely you can see it was just an example - I could have typed "graphic artist" or "welder", etc. (Actually the two chip designers I know run their own independent business, why it came to mind! heh. neither called Sally.)
    – Fattie
    Commented Apr 23, 2018 at 0:03
  • No. Honestly, I’m old and pretty dense. It’s usually either a hypothetical question or real one with the specific details. You threw me off by having some specifics. Now that I’m clear she’s a 1099 contractor, effectively self-employed, I’ll probably delete my attempt at answering. The other one addressed it better.
    – JTP - Apologise to Monica ♦
    Commented Apr 23, 2018 at 0:56

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