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IRS.gov Website
Publication 17
taxmap/pub17/p17-144.htm#en_us_publink1000173792

Gift Expenses(p183)

For Use in Tax Year 2013
rule
If you give gifts in the course of your trade or business, you can deduct all or part of the cost. This section explains the limits and rules for deducting the costs of gifts.
taxmap/pub17/p17-144.htm#en_us_publink1000173793

$25 limit.(p183)

For Use in Tax Year 2013
rule
You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.
If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit.
If you and your spouse both give gifts, both of you are treated as one taxpayer. It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.
taxmap/pub17/p17-144.htm#en_us_publink1000173794

Incidental costs.(p183)

For Use in Tax Year 2013
rule
Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit.
A cost is incidental only if it does not add substantial value to the gift. For example, the cost of customary gift wrapping is an incidental cost. However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit.
taxmap/pub17/p17-144.htm#en_us_publink1000173795

Exceptions.(p183)

For Use in Tax Year 2013
rule
The following items are not considered gifts for purposes of the $25 limit.
  1. An item that costs $4 or less and:
    1. Has your name clearly and permanently imprinted on the gift, and
    2. Is one of a number of identical items you widely distribute. Examples include pens, desk sets, and plastic bags and cases.
  2. Signs, display racks, or other promotional material to be used on the business premises of the recipient.
taxmap/pub17/p17-144.htm#en_us_publink1000173796

Gift or entertainment.(p183)

For Use in Tax Year 2013
rule
Any item that might be considered either a gift or entertainment generally will be considered entertainment. However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift.
If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage.
If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. You cannot choose, in this case, to treat the cost of the tickets as a gift expense.