Are Business Gifts Tax Deductible? The IRS $25 Rule and Liquor

Before a company orders bottles for clients, someone in finance usually asks the same question: can we deduct this? The short answer from the IRS is yes, within a limit, and the limit is lower than most people expect. This guide walks through the federal business-gift rule as the IRS states it, how it applies to a bottle of liquor, and what to keep on file.

This is general information, not tax advice. Your accountant should confirm how the rules apply to your company.

What is the IRS $25 business gift rule?

IRS Publication 463 (2025), chapter 3, says you can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. The limit is per recipient, per year, not per gift. If you send the same client contact three bottles in one year, the deduction for that person is still capped at $25.

The IRS also treats a gift to a company that is meant for a particular person, or a small group of people, as an indirect gift to those people. Sending one bottle "to the account" does not get around the limit if it is really meant for the people you work with there.

Does a bottle of liquor count as a gift or as entertainment?

This matters because entertainment is generally not deductible at all. Publication 463 says an item that could be either a gift or entertainment will generally be treated as entertainment. It then adds an exception that fits a bottle: if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift.

A sealed 750ml bottle sent to a client to open later fits that description. Pouring drinks for a client at an event is a different situation, and your accountant should look at that separately.

Do shipping, packaging and the label count toward the $25?

Publication 463 says incidental costs, such as packaging, insuring and mailing, are generally not included when you figure the cost of a gift for the $25 limit. A cost is incidental only if it does not add substantial value to the gift. The IRS example is gift wrapping (incidental) versus an ornamental basket that is worth a lot compared with what is inside it (not incidental).

How a custom label or a gift box is treated on your own books is a question for your accountant. We would not assume either one is automatically incidental.

What about gifts to employees?

The $25 rule in chapter 3 is about business gifts, such as gifts to clients, customers and partners. Gifts to your own employees are handled under different rules for employee compensation and benefits. Ask your accountant how an employee holiday bottle or a work-anniversary bottle should be treated before you plan the budget around a deduction. For the gift side of an employee program, see employee holiday gifts and recognition and milestone gifts.

What records should you keep?

Keep a simple gift log for every program. For each recipient, note:

• Who received the gift and their business relationship to you
• What the gift was and what it cost
• The date it was given or shipped
• The business reason for the gift

A recipient list you already use for direct-to-recipient shipping is a good starting point for this log.

Check the recipient's gift policy too

The tax rule is only one limit. Many clients have their own gift policies, and some industries set their own caps. For example, FINRA Rule 3220 limits gifts from member firms to $300 per individual per year in relation to the recipient's business. Government and some corporate clients may not accept gifts or alcohol at all. Confirm before you finalize a list.

So is a custom bottle still worth it?

The deduction is capped, but most companies do not send client gifts for the deduction. They send them so the client remembers who sent them. A bottle with your company's name on the front label stays on a shelf long after a card is thrown away. See 20 corporate liquor gift ideas for ways companies use one.

Handled makes custom-label spirits for companies. You pick the spirit and the occasion, and we design the label with you, file it for federal label approval, bottle it in 750ml bottles, and ship in bulk or direct to each recipient. For direct shipping, our licensed retailer partners ship to most US states; eligibility is confirmed at checkout. Bourbon and rye programs are about one barrel, roughly 200 bottles. For other spirits, program size is confirmed on your quote. Ready-to-drink formats are also available and confirmed on the quote. Lead times run the same as our creator drops, roughly 10 weeks, from label design through federal label approval and bottling. We can't promise delivery by any holiday, so plan early. Your brand. Your bottle. We handle it.

Ready to plan a program? Request a quote, or see how corporate gifting works.

Business gift tax FAQ

Are business gifts tax deductible?

Yes, within a limit. IRS Publication 463 says you can deduct no more than $25 for business gifts to each person per tax year. Ask your accountant how it applies to you.

Is a bottle of liquor a deductible business gift?

It can be. The IRS treats packaged food or beverages that a customer is meant to use later as a gift, not entertainment. A sealed bottle sent to a client fits that description. The $25 per-person limit still applies.

Does shipping count toward the $25 limit?

Generally no. The IRS says incidental costs such as packaging, insuring and mailing are generally not included, as long as they do not add substantial value to the gift.

Can I send one gift to a company to avoid the limit?

Usually not. The IRS treats a gift to a company that is meant for particular people as an indirect gift to those people, so the per-person limit still applies.

Do the same rules apply to employee gifts?

No. Gifts to your own employees fall under different rules. Ask your accountant before you plan an employee program around a deduction.

Who checks that recipients are 21 or older?

An adult 21 or older must sign for each delivery. Handled gifts are for adults of legal drinking age only.

How do I start a gift program?

Tell us the occasion, the spirit and how many people are on your list. Request a quote and we confirm program size, formats and timing.

Source: IRS Publication 463 (2025), Travel, Gift, and Car Expenses, chapter 3, Gifts (irs.gov/publications/p463); FINRA Rule 3220 (finra.org). General information only, not tax or legal advice.

Handled gifts are for adults of legal drinking age (21+). Please enjoy responsibly.