It's not too late to give a gift to a business associate and receive a "gift" on your Schedule C. By taking advantage of the gift business expense, small business owners can provide a nice present to their business colleagues and help to lower their business tax liability. In many cases a business gift can be deducted against your taxable income and be a fully deductible business expense. What a deal for your customer and for your business too.

The most important thing to remember about business gifts is the $25 rule enforced by the Internal Revenue Service. The IRS Gift Rule states that you can deduct up to $25 in business gifts to any one taxpayer in any given tax year. There is no limit to the number of people you can send business gifts to each year. Should you feel really generous you might send a $25 dollar gift to all 500 of your clients. Well, let's be realistic, even though it is considered by some to be a "write-off," that is still $12,500 in business expenses that's coming out of your pocket.

Of course this is the IRS, and there are always exceptions that you need to be aware of. One important exception, by IRS standards, is that a husband and wife are considered to be one taxpayer, so you may only deduct $25 dollars in total gifts. This means if you want to give gifts to both Mr. and Mrs. Smith who own the local bookstore, you may only deduct up to $25.

The other very important exception is how the IRS tax code distinguishes a "gift" from "entertainment." Let say you have the opportunity to give a client a couple of tickets to the Napa Valley Opera House. This is considered a gift, but it also falls in the category of "entertainment." If you go to the event with the client then it should be considered entertainment and then you forgo your opportunity of "writing-off" $25 as a business gift expense. You can however deduct it as an "entertainment business expense," but then you may only deduct 50 percent of the total expense. Also, dining out is almost always considered "entertainment expenses" as opposed to "gift expenses."

There are a few other notable exceptions. Items that you give out to clients that cost less than $4 or have your name permanently printed on it (pens, desk sets, bags) are not considered gifts for the purpose of the $25 limit. If you are offering "gifts" of signs, display racks or other promotional materials, those items fall under the category of promotional or marketing materials and should not be expensed out as gifts.

When you are planning your business "gifting" strategy this year, keep in mind that you may need to defend your expensing methods in an audit. You want to make sure that the expense was ordinary and necessary in your specific business. That is IRS lingo for ensuring that you do not abuse the gift expense tax law.

I encourage you to check out IRS publication 463 for more specific information on gift expensing and to consult your tax professional. The IRS information and the publication can be obtained on the IRS Web site at www.irs.gov.

During the holiday season it is truly better to give than receive; but is also nice to get a tax deduction. Happy holidays!