Author: Leon Clinton

You plan to send holiday gift baskets to colleagues, referral partners, and select customers, and you want to deduct the cost. You can take a deduction, but the IRS limits you to $25 per recipient per year. 

This rule comes straight from 1962, and lawmakers have never increased the limit—even though real-world prices have climbed dramatically over the past six decades.

You may give a much more expensive basket if you choose, but you can deduct only the first $25. If you maintain separate business relationships with both spouses, you may deduct $25 for each person. 

The IRS does not let you treat higher-value packaging or decorative containers as “incidental,” so those items count toward the $25 cap. However, you may treat shipping, sales tax, and basic wrapping as incidental because they do not add significant value to the gift.

To protect your deduction, you must keep simple records. For each gift, write down the cost, the date, the description, the business purpose, and your business relationship with the recipient. You can easily explain the business reason: you strengthen colleague relationships, encourage referrals, and maintain customer loyalty.

The real problem comes from the outdated limit. A $25 cap from 1962 equals roughly $268 today when you adjust for inflation. Meanwhile, everyday costs from cars to postage have increased many times over. Congress never updated this rule, and it now creates an unfair result for business owners who want to maintain normal professional relationships during the holiday season.

You have two practical options: First, you can urge lawmakers to fix this problem. A simple inflation adjustment would bring the deduction cap into modern reality. Second, you can choose to keep each gift at or below $25 and guarantee a full deduction. Many business owners take this approach and focus on thoughtful but modest gifts.

If you want to discuss business gifts, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• January 2, 2026

If you’re considering buying a business, it’s important to understand how the related investigation and acquisition costs are treated for federal income tax purposes—especially if a deal falls through. A recent example illustrates how these rules work.

Jim, an employee looking to become a business owner, spent $15,000 researching an industry and identifying a target company. Once he decided to acquire that business, he incurred an additional $35,000 in legal, accounting, and similar fees. When the purchase failed, the tax consequences depended on the nature of each cost:

• Initial investigation costs ($15,000). Because Jim never acquired the target business, his early research and start-up expenses are treated as personal and non-deductible. However, if he later buys a business in the same field, he may roll some or all of the costs into the new start-up and treat them as amortizable start-up costs.

• Acquisition-specific costs ($35,000). Professional fees incurred after Jim committed to the purchase must be capitalized. Since the deal collapsed within a year, he may treat these costs as a short-term capital loss, deductible against capital gains and up to $3,000 per year of ordinary income until fully used.

Bottom line. A failed acquisition can still produce valuable tax benefits. Start-up and transaction costs are handled differently, and proper classification helps ensure you capture all available deductions and losses.

If you want to discuss investigation and acquisition expenses, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• December 30, 2025

I want to alert you to an important deadline that affects your upcoming projects. The federal energy efficient home builder credit offers up to $5,000 per qualifying home, but the opportunity ends on June 30, 2026. You still have time to benefit, but you must act quickly.

This credit rewards builders and manufacturers who construct or substantially renovate energy-efficient single-family, multifamily, or manufactured homes. To qualify, you must own the home during construction, meet the required energy efficiency standards, and ensure that an individual purchases or leases the home as a residence no later than June 30, 2026.

The credit amount depends on the home type, its Energy Star or Zero Energy Ready Home certification, and whether you meet prevailing wage rules for multifamily projects. Credit amounts range from $500 to $5,000 per unit.

You must keep documentation that proves the home meets the required standards, that you qualify as the builder or producer, and that the buyer/tenant acquired or rented the home or apartment for residential use within the allowed period. You claim the credit on IRS Form 8908, and if your business operates as a partnership, an LLC, or an S corporation, the credit will flow through to you.

Keep in mind that claiming the credit requires a reduction to your basis in the home or building. Even so, the financial benefit usually far outweighs the adjustment.

If you plan to start or finalize projects in the coming months, I encourage you to review your timelines now. With only seven months left, efficient planning can help you secure these valuable credits before they disappear.

If you want to discuss eligible projects, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• December 26, 2025