Are gift baskets tax deductible?

June --

I've been a sole proprietor for 25 years. I am being audited for the second time (in 25 years). I searched Ask.com for "Are gift baskets tax deductible?". As I prepare for this audit I am starting to doubt basic write-offs I have taken primarily because of all the research I am doing.

I got to wondering if a gift basket comprised of food would somehow fall under meals and entertainment.

Thanks for the information.
Janice
Orange , Ca


Dear Janice,

Regardless of the cost of the gift basket your deduction is limited to $25 . And that is the total you may deduct as a gift for a business associate for the entire year.

Were you to purchase the gift basket and take it with you as your meal while on a picnic with your associate and you discuss business before, during or after the picnic meal then you could deduct the basket as a meals & entertainment expense.

Here's an example of the difference in deductions:

You purchase two $150 gift baskets for a client during the year.
Your cost: $300.
Your deduction: $25

You have two $150 business dinners with your client during the year.
Your cost: $300.
Your deduction: $150. [50% of $300]

-- June