Training for Success With Your Internet Business, Article 10 Promotional Items

The success of your sales efforts depends upon your presentation.  Fortunately, the cost of promotional items, gifts and samples are deductible expenses for your business.

This includes:

Any products purchased by you to be tested in your home.  You may deduct the cost of at least one of each product for testing to determine its effectiveness, quality, durability, or reliability to your own satisfaction.

The initial start-up package of products and tools,  if you are required to purchase them.

Demonstration products.

Items loaned to prospects, after they have completed a program demonstration.

Any tapes you buy either to loan out, to train yourself, or to give away to promote your business.

Books used to help you build the business.

Pins, plaques, or any form of awards associated with achieving goals that you decide to use.

Gifts costing up to $25 each provided to people important to your business.  There is a once per year limitation.  There is no limit on the number of people to whom you may give gifts provided they are business-related. When calculating the cost, do not include the cost of gift-wrapping, engraving on jewellery, packaging, and mailing.

A business gift must be given with the expectation of earning a profit.  However, you do not have to actually profit from each and every gift in order to deduct the cost. There must also be some business connection between you and the recipient of your gift, either as a current or prospective customer or client.  This is especially true if you want to deduct gifts you make to relatives and friends (not the best of uses).

Be careful, though, if you order any of these items on the same order form as products for sale.  Do not include them as purchases in determining your cost of goods sold. 

You should deduct the cost of promotional items as operating expenses. A good practice is to buy these items on a separate order form to prevent year-end confusion, and in some countries to limit consumer taxes. The same caution must be exercised if you order products for your own personal use.  Again, these personal-use items must be subtracted from the total of your purchases to accurately determine the amount of merchandise ordered for resale.

If you occasionally take a sample for personal use, you must subtract the cost of the item from your deductible sample expense. Do you sometimes use demonstrator products for personal purposes?   If so, you will have to allocate the cost between the time the product is used for business and the time it is used for personal reasons.  Only the business portion of the cost is deductible.

Note: Taxation legislation differs between countries and each country may change their rules at any time. The information provided in these newsletters is accurate at time of publication. You should however seek specific information from your Tax Advisor or Taxation Department as it relates to your own situation each year that you are required to provide Income and Expense Statements.

John Ritchie, A.I.B., A.I.C.B, F.I.C.B, email:brlynt@gmail.com

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