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Uncle Sam can be stingy when it comes to business gifts. In general, you can only write off up to $25 per person per year. But there’s a tax-wise maneuver that can increase your deduction if you want to be more generous.

Simply give tickets to the theater or a sporting event. Under the tax law, you can treat gifts as either an entertainment expense or a business gift. Keep in mind, however, that you can only write off 50 percent of entertainment expenses. But with the cost of tickets these days, it’s possible to come out ahead on your tax return and give a special gift.

For example, let’s say you want to thank a favorite customer with two $75 tickets to a professional basketball game. If you treat the tickets as a business gift, you can only deduct $25 of the $150 cost. But if you classify the tickets as an entertainment expense, your deduction grows to $75 ($150 reduced by the 50 percent limit). 

Remember to keep good records of business gifts and entertainment expenses since the IRS is always on the lookout for cheating in these areas.

 Caution: Don’t make the mistake of thinking you can get around the $25 business gift limit by calling the outlay something else. In one case, an S corporation gave $210 gift certificates to customers and deducted the full amount as an "advertising" expense. The Tax Court agreed with IRS auditors who only allowed a write-off of $25 per recipient (Ronald and Sue M. Leschke, TC Memo 2001-18).


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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.