Deducting Gifts to Customers

Course: Income Tax Planning
Lesson 10: Recognition of Expenses, Losses, and Deductions

Student Question:

Can you clarify the deductibility of gifts when we’re talking about employees of a business versus self-employed individuals?  It seems the rules have changed on these.

Instructor Response:

An employee (W2 employee or statutory employee) can no longer deduct unreimbursed gifts to customers of any amount.  Before the Tax Cuts and Jobs Act (TCJA), employees could potentially deduct unreimbursed gifts to customers up to $25/customer as a 2% Miscellaneous Itemized Deduction;  “potentially” because an individual taxpayer could only deduct these expenses to the extent all 2% Miscellaneous Itemized Deduction expenses exceeded 2% of adjusted gross income.  The 2% Miscellaneous Itemized Deduction category was eliminated by TCJA.  

A self-employed person can deduct gifts made to customers within the $25/customer limit as an expense of the business.