Can you deduct business gift cards to customers? Tax rules for customer gifts?

7 While Publication 463 doesn't specifically mention gift cards by name, they generally fall under the IRS rules for business gifts. The basic rule is that you can deduct no more than $25 per person per year for business gifts. This is found in IRC Section 274(b). The tricky part with gift cards is that the IRS sometimes views them as cash equivalents rather than gifts. When given to customers as prizes or in raffles, they might actually be treated as promotional or advertising expenses rather than gifts, which would make them fully deductible as a marketing expense. If you're giving them away as part of a raffle or promotion, you might have a stronger case for treating them as marketing expenses rather than gifts subject to the $25 limit. The key is how you're using them and documenting their business purpose.

19 After struggling with similar questions about business deductions for my construction company, I found this amazing AI tool that analyzes your specific tax situation and gives you personalized answers. I was confused about whether certain expenses were deductible and how to categorize them properly. I uploaded our expense records to https://taxr.ai and got clear guidance on how to handle gift cards and promotional items. It showed me exactly how to document these expenses to maximize deductions while staying compliant. The tool even cited the specific tax codes that applied to my situation which was super helpful when discussing things with my accountant.

14 I was initially really skeptical about using AI for tax advice (as you can see from my earlier comment), but I decided to try https://taxr.ai for my small business tax questions. I needed clarity on some advertising expenses vs. business gifts for an event I hosted. The tool surprised me - it actually showed me the distinction between business gifts (limited to $25 deduction per recipient) and promotional expenses. For my situation with gift cards for a customer drawing, it explained how documenting them as marketing expenses rather than gifts could make them fully deductible. What sold me was seeing the actual IRS code references and how they applied to my specific situation. Saved me from a lengthy back-and-forth with my accountant and gave me confidence in how to handle these expenses properly.

5 If you're really struggling to get clear info from the IRS about gift card deductions, I feel your pain. I spent WEEKS trying to get through to someone who could answer my questions about business deductions last year. Finally found this service called Claimyr that got me through to a real IRS agent in about 15 minutes when I'd been trying for days on my own. You can check it out at https://claimyr.com or see how it works at https://youtu.be/_kiP6q8DX5c The agent I spoke with clarified that gift cards given in promotional contexts (like your raffle) should be documented as marketing expenses rather than gifts, which means they wouldn't be subject to the $25 limit. Totally worth it to get an official answer directly from the IRS.

9 I have to eat my words from my skeptical comment above. After getting frustrated with conflicting advice online about business deductions, I decided to try Claimyr as a last resort before my tax filing deadline. I was shocked when I actually got connected to an IRS representative in under 20 minutes. The agent was able to clarify exactly how gift cards should be treated for my business situation. She explained that when used as promotional items in a customer event, they should be documented as marketing expenses rather than gifts. This saved me hours of research and uncertainty, and potentially saved me money on my taxes too. Sometimes it's worth paying for the shortcut when dealing with the IRS, especially during busy season.

16 I'm a CPA and I deal with this question frequently. The key distinction is the INTENT behind giving the gift cards: 1) Gift cards given directly to specific customers as appreciation gifts are subject to the $25 limit under IRC Section 274(b). 2) Gift cards used as prizes in raffles, contests, or general promotional events can typically be deducted as marketing/advertising expenses without the $25 limit. Document everything thoroughly - keep records of the event, business purpose, and recipients if possible. If it's truly a random drawing or raffle, make sure that's clear in your documentation.

10 Has anyone else heard that gift cards to employees are always taxable as compensation, but gift cards to customers are handled differently? I'm confused about whether I need to issue 1099s to customers who win larger gift cards in our company raffles.

I've been dealing with similar questions about gift card deductions for my consulting business. After researching this extensively, I found that the IRS Publication 535 (Business Expenses) actually provides some additional clarity beyond what's in Publication 463. The key factor is whether the gift cards are given as "prizes" or "awards" versus traditional business gifts. When you give gift cards as raffle prizes at a customer appreciation event, they're typically treated as promotional/advertising expenses rather than business gifts, which means they're not subject to the $25 per person limit. However, make sure you're not giving them to the same customers repeatedly throughout the year, as that could make the IRS view them as disguised gifts rather than legitimate promotional expenses. Document the event clearly as a business promotion and keep records of how winners were selected randomly. For what it's worth, I've successfully deducted similar promotional gift card expenses for several years with no issues during audits, as long as the documentation clearly shows the business purpose and random selection process.

I've been following this discussion with great interest as I'm facing a similar situation with my retail business. We're planning a grand reopening event and want to give away gift cards as door prizes. Based on everything discussed here, it sounds like the key is establishing these as legitimate promotional expenses rather than business gifts. I'm planning to document our event with photos, keep an attendee list, save our promotional materials, and clearly show the random selection process for winners. One additional question - does anyone know if there's a practical dollar limit where the IRS might scrutinize promotional gift card expenses more closely? I was thinking of doing a few $100 gift cards as grand prizes along with smaller $25 ones. Would the larger amounts potentially trigger more attention or change how they should be classified? Also, for those who have been through audits with these types of expenses, were there any specific documentation items that auditors particularly focused on or that you wished you had kept better records of?

Based on my experience running a small marketing agency, I can confirm what others have mentioned about the distinction between business gifts and promotional expenses. We've successfully deducted gift cards given as contest prizes for several years now. The IRS really does focus on the context and documentation. For our client appreciation events, we always create a simple contest entry form that captures business contact info (which serves the dual purpose of lead generation and documenting the promotional intent). We also take photos of the drawing process and keep copies of any promotional emails or social media posts advertising the event. One thing I learned from our tax preparer is to make sure your gift card purchases are categorized consistently in your bookkeeping - either as "Marketing/Advertising Expenses" or "Promotional Expenses" rather than mixing them with other categories. This helps establish a clear pattern if you're ever audited. For your $35 restaurant gift cards, that amount is very reasonable for a customer appreciation raffle. Just make sure you can clearly show it was a legitimate business promotion rather than disguised gifts to specific favored customers.

As a small business owner who went through this exact same confusion last year, I can add some practical perspective to this great discussion. I run a local service business and wanted to give away gift cards at our annual customer appreciation barbecue. After researching extensively and consulting with my CPA, here's what I learned: The $25 business gift limit in IRC Section 274(b) applies when you're giving gifts directly to specific individuals as a gesture of goodwill. However, when gift cards are given as prizes in a legitimate promotional event like a raffle or contest, they're typically classified as advertising/marketing expenses and aren't subject to that $25 limit. The key is proving the promotional intent through documentation. I kept photos of our event, a sign-in sheet, copies of our promotional flyers, and a simple raffle entry form. When our CPA prepared our taxes, these gift cards were deducted as marketing expenses without any issues. For your $35 restaurant gift cards in a customer appreciation raffle, that sounds perfectly reasonable and should qualify as promotional expenses rather than business gifts. Just make sure you document the event well and can show it was a legitimate business promotion with random winners rather than gifts to specific preferred customers.