Every Christmas, business owners across America do the same thing:
They send gift baskets, chocolates, bottles of wine, candles, or whatever Costco had stacked by the entrance.
It’s goodwill.
It’s relationship-building.
It’s marketing.
It’s business.
But according to the IRS?
It’s worth exactly $25.
Not per item.
Not per gift basket size.
Not per year adjusted for inflation.
Nope—just twenty-five dollars, total, per person, per year… the same limit that was set in 1962 and never updated once.
And yes, that means in the eyes of the tax code, your heartfelt $90 holiday gift basket is the equivalent of a gas station fruitcake.
Why $25 Makes No Sense (Unless You Time-Traveled Here From 1962)
Back when the rule was written…
A brand-new Ford Galaxie cost $2,645
Gas was $0.31 a gallon
A postage stamp was four cents
Minimum wage was $1.15
In today’s dollars, that $25 would be $268.
But Congress never adjusted it.
So here we are, 63 years later, living in a world where the IRS acts like your holiday gift budget should be roughly equal to the cost of two gingerbread lattes.
What You Can Deduct — and What You Can’t
The rule is painfully simple:
If your gift costs over $25, you may deduct… $25.
If your gift costs $25 or less, you may deduct the whole thing.
If you give gifts to both a husband and wife—and you have separate business relationships—you get two $25 deductions. Merry Christmas?
To make it more fun, you have to document:
Cost
Date
Description of the gift
Business purpose
Relationship
Because nothing says holiday cheer like receipts and recordkeeping.
The Incidental Costs Loophole (The IRS Accidentally Left You a Stocking Stuffer)
Here’s the one tiny bright spot:
The IRS will let you ignore incidental costs such as engraving, wrapping, mailing, and delivery as long as they don’t add substantial value to the gift.
Translation:
Custom wrapping? Deductible.
Shipping? Deductible.
The actual basket that holds the fruit? If it’s too nice… sorry, no.
Apparently the IRS is very concerned that someone might enjoy a decorative basket.
So How Do You Win at Holiday Gifting?
You have two choices:
✔ Option 1: Hope Congress Updates the Rule
The IRS gift rule lives in Section 274(b). Congress could update it to a reasonable $268 limit tomorrow.
But given their track record… don’t hold your breath.
✔ Option 2: Use Strategy
Most business owners either:
Keep gifts under $25, or
Stop caring about the deduction because the relationship is worth more.
Both are valid.
One is tax-smart.
One is people-smart.
Most good businesses choose both.
Why This Matters During Christmas Season
December is a month when:
You spend more
You give more
You try to finish the year strong
You get buried in receipts you swear you’ll organize “after the holidays”
And it’s the exact time when tax mistakes creep in.
The $25 rule isn’t just outdated — it’s a perfect example of how many parts of the tax code are stuck in the past.
If you’re not planning around these rules, you’re not just losing deductions…
You’re leaving money under the tree for the IRS.
The Takeaway (Wrapped in a Bow)
Holiday gifting is great.
Relationships matter.
But the tax code is still living in 1962 — and unless you know the rules, you’re not getting the deduction you think you are.
So give generously.
But plan wisely.
Because the only thing worse than finding coal in your stocking… is finding out in April that your Christmas gifts weren’t deductible.
What’s one holiday business gift you give every year that you thought was deductible?
