As a small business owner, you are most likely going to incur some expenses related to the promotion of your business. Generally, most of the expenses you incur are deductible either as advertising expense or as some other expense. Some expenses are not deductible. In any case, the Internal Revenue Service requires that your expenses be ordinary and necessary to the operation of your business in order to be deductible.
There are typically three types of expenses that are considered advertising for tax purposes: ordinary advertising expenses, public relations expenses, and promotional activities.
Ordinary advertising expenses include a wide range of items including, but not limited to, business cards, print advertisements, radio or television advertisements, yellow page advertisements, Internet advertising and billboards. The cost of maintaining your website is most likely fully tax deductible but whether or not it falls under advertising expense for tax purposes will depend on your individual website. Some websites are designed to promote the business while others are essentially the operations of the business (for example, Amazon.com).
The second major type of advertising expense that your business may incur is public relations expenses or expenses that are designed to promote goodwill toward your business. Examples of this would be the distribution of samples to clients or the sponsorship of a Little League team or community softball team.
Promotional activities can include things such prizes and contests for your clients. For example, if you hold a monthly drawing for your clients and the monthly winner receives gift certificates to a local restaurant, the cost of the promotion and the cost of the gift certificates can be deducted as advertising expenses. If as part of a promotion, you provide free food or drinks to the general public, you are permitted to deduct 100% of these costs as advertising expenses – they are not subject to the 50% limitation on meals and entertainment expenses.
Now it’s time for the bad news – what is not deductible. Generally, any type of lobbying expense is not deductible in amounts in excess of $2,000 in a given tax year. These include expenses that were incurred in connection with or against a particular political campaign and expenses incurred in the attempt to influence the public about elections or legislative matters. There are also exceptions for expenses that influence local councils and boards to allow for the tax deduction.
Where many taxpayers get into trouble are in areas that are both personal and business in nature. Just because an expense appears to be both personal and business in nature does not mean that it is not deductible. If you invite a large number of clients to your Annual Client Appreciation Cruise on the lake, these expenses are likely to be tax deductible. If you invite the same people on a similar cruise but it happens to also be your daughters wedding reception, it will not be tax deductible.
In order to support your deduction, be sure to maintain a copy of the invoice and your proof of payment. It is also a good idea to save a copy of the advertisement. If you have any questions about a grey area, be sure to contact your tax advisor for clarification.
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Frequently Asked Questions
Limit of tax free gifting in the year 2009
By: kevin | 18-09-2008
What will be the dollar limit on tax free gifting in the year 2009?
I Know Patriots Joe ...Your Not One of Them!
By: MarineReconDad | 18-09-2008
Joe Biden is insane! He actually believes that paying more taxes is "patriotic"! Help one another out! get in the game! Let me help you out Joe,fighting for your country ( like your son and mine) is patriotic! Supporting the fighting men and women is patriotic! Proudly wearing the American flag is patriotic! Not being ashamed to put your hand over your heart is patriotic! Paying more taxes, so the Democrats can try an withold needed supplies for our military is NOT patriotic! Taking from successful people to give to others is not patriotism! It is socialism! And, while we are talking about the rich ($200,000 plus a year) and helping out, getting in the game! I find it curious that a man who has made 2.5 million in income over the past 10 years has "helped out" (given to charity) a whopping amount of $3,700! Joe, the original patriots fought against the country which was unfairly taxing them! That is patriotism!
Does the capital gains tax rules for 2008 apply to ...
By: Hurley | 18-09-2008
Does the capital gains tax rules for 2008 apply to government E-bonds held to maturity (ten years or longer)?
About this place
By: tanya | 18-09-2008
17 Lakeview Manor, Manorville, NY
America,please wake up !!!.
By: MarineReconDad | 17-09-2008
America,please wake up before we make the biggest economic mistake in our countries history! Though the foundation of our economy (the workers) are strong. The economy is still on the verge of a catastophic collapse! Investors who lack confidence in our system are reluctant, due to almost a 10% freefall on Wall Street! That being said this is NOT the time to raise corporate tax rates and stifle any recovery which may try to occur. To raise the corporate tax rates (even by 4 or 5%) as Obama has vowed to do would be the straw to break the economic back of America. Investors will go to Europe or Malaysia where corporate rate have been cut to attract business investors! This is the time to reduce corporate taxes and bring business and jobs back to America! If the tax rates are raised on personal (two wage earner familes) and corporate taxes as well. Americans will be drained by the taxes and cost of purchased products as well. Businesses who have their taxes raised WILL pass that increase DOWN the line to every low and middle income family in America to maintain their profits. And, Obama won't help you then! If you think it is tough now with gas and, increases in the cost of food and other goods, just wait!Despit tax increases, the higher income bracket of America will still make their money (which they should) while the lower and middle class will suffer!
We need to right our economic ship, but, with common sense economics. Not some smoke and mirrors redistribution of wealth "fleece" scheme! It's not rocket science. Already, when gas prices go up companies tag that increased cost on everything you purchase. We have all seen it and are suffering with it. The guy who makes $6.50 an hour pays the same as the guy making $25 an hour for gas. Everyone's food and utility bills have skyrocketed, just with the cost of fuel. Imagine bread $5 a loaf, milk costing $10 or $12, eggs $6 a dozen! It could happen if we make the WRONG choice! CHANGE? I don't want THAT kind of CHANGE!
Joint Accounts
By: Scott | 16-09-2008
My Father had an individual self directed brokerage account and subsequently added me as a joint account holder. He died in December 2006 and I did not include the account activity on my 2006 tax return. Am I ultimately responsible for this account/tax liability? I was confused how the tax reporting by the brokerage changed from reporting (1099's) using my Father's SSN to later reporting under mine. Thanks JSH in Texas
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