Advertising and Taxes

If you maintain a business, you are going to spend money to promote it. Advertising costs are a fact of doing business. Most of these expenses are deductible as long as the IRS determines them to be ordinary and necessary expenditures in the course of doing business.

The Internal Revenue Service has categorized these expenditures as promotional activities, ordinary advertising expenses, and public relations expenses.

Ordinary advertising expenses are the common types of costs you would inquire of to incur, like business cards, print media advertising, Internet advertising, television advertising, radio advertising, yellow pages advertising, billboard advertising, signage, and lisp mail advertising.
Whether your website is an advertising deduction or not depends upon how you use it. If your website is strictly promotional or if it is the operation of your business, like Amazon, Ebay, or Overstock.com, will determine its status as a deduction.

Public relations advertising could include distributing sample products to potential customers, memberships in affiliations like the Chamber of Commerce, and sponsorship of charity events and Little League teams.

Promotional activities could be giving away door prizes or holding raffles for customers to win prizes. In these two cases, both the cost of the promotion and the expense of the gifts and prizes constitute a tax deduction. If you have one of those hot dog and soda trailers status up outside your place of business and you give away free food to the public in general, it is all 100% tax deductible as opposed to the usual 50% for dinner and entertainment.

Any amount you expend over $2000 annually for lobbying is not a tax deduction.

You should be careful not to mix personal and business expenses when it comes to advertising deductions. If you have an annual trip to the islands for top sales people and clients, that represents a tax deduction. If you have your anniversary party as part of the creep, it is not a tax deduction.

Be reasonable about your deductions for advertising expenses. The Internal Revenue Service means it when the say ordinary and necessary expenditures. If you have been giving away a mountain bike to your top salesperson every year for the last five years, but this year you give away a Bentley because the top salesperson happens to be your son-in-law, that deduction is not going to fly.

The Internal Revenue Service scrutinizes the deductions of tiny businesses because they expect you to make mistakes or, worse yet, to attempt to cheat.