In the course of your business, you may give gifts to your editor, researcher, photographer, illustrator and literary agent. The cost of business gifts is deductible, within limits.
You may only deduct up to $25 per person per year. This rule applies to both direct and indirect gifts. An indirect gift includes a gift to a company that is intended for the eventual personal use of a particular person or a gift to a spouse or child of a business customer or client.
Incidental costs, such as wrapping , insuring, or shipping the gifts do not count as part of the $25 limit. You do not have to count the cost of engraving on jewelry either as part of the limit. Of course, you can always spend more for a business gift but the deductible amount per person will be capped at $25 per year (this dollar amount has not been changed since 1962).
Items clearly of an advertising nature that cost $4 or less (such as pens, plastic bags, calendars) with your company name imprinted on them that you distribute to existing or potential customers/clients are not gifts and are a separate deduction. Signs, display racks, or other promotional materials given for use on business premises are not gifts but a separate deductible business expense, regardless of the cost (IRC Section 274(b)(1) and Treasury Regulation 1.274-3).