Starting a Small Business

Tax Deductions for Advertising and Promotion Costs for Small Businesses

by
Mike Kilmer
on
10/17/2016
Tax Deductions for Advertising and Promotion Costs for Small Businesses

Many factors add up to the total cost of running a small business. Some of these factors are eligible for tax deductions, while others just take away from profits. Advertising and promotional costs can fall into either category. Reducing tax liability by lowering taxable income is the goal.

Business Deductions: Advertising and Promotional Costs

The process of itemizing individual income tax deductions and business tax deductions is a different process. With personal income tax return forms, each deduction is a separate entry that reduces taxable income by the value of the deduction. For business tax return forms, expenses are listed, which are then subtracted from total earning to come up with taxable income. Like items, such as property taxes, payroll and leased space, advertising and promotional costs are deductible simply because they are a portion of the cost of doing business.

Regulations on Deductions

Small businesses can only deduct the costs of advertising and promotions when they are necessary and ordinary. To present more clarity, the advertising and promotional costs are only deductible if the expenses have a direct relationship to the business and are an avenue to manage the brand’s reputation, reach out to customers, and deliver information about its products or services. Donations and anonymous sponsorships are not regarded as promotional since they don’t represent the company to the consumer. Therefore, they are not deductible.

Qualifying Deductions for Small Businesses

Most advertising and promotional expenses can be deducted on a tax return. This includes the costs involved with using marketing firms and advertising agencies, advertising fees for online, TV and radio marketing and the costs of copyrighting marketing slogans, logos and ads. And there’s also more promotional expenses that are deductible including the cost of holding special events for customers, printing business cards with company logos, sponsoring sports teams and printing fliers.

Special events and promotional activities include things like contests and prizes for your clients. For example, if you have a regular drawing for gift certificates at a local restaurant, the cost of the gift certificates and the cost of the promotion can be deducted. If you provide free beverages and food, you are allowed to deduct all of these costs.

The monetary expense of maintaining and operating a small business website is tax deductible. However, whether or not it falls under advertising expense or another category for tax purposes is dependent on the specific website and its purpose. Some websites are designed to promote the business while others are basically designed for the daily operations of the company.

The Benefits of Deducting Advertising and Promotional Costs

The more you spend on advertising and promotions, the more you save on taxes. Plus, there’s more money for marketing, and sales revenue is boosted. The saved monies can also be used for paying down small business debt, developing new products for the marketplace, or expanding the workforce.

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Mike Kilmer

Mike Kilmer

R. Michael Kilmer, CPA, CVA is a CPA based in Winchester, VA. Mike started Kilmer & Associates, CPA, P.C. in 1998 and understands the challenges of operating a business. He uses this real-life experience to assist clients with the opportunities and challenges that they face. In addition to possessing the expertise and technical skills required by the profession, he takes time to listen to clients concerns and communicates with straight talk in an understandable way. By combining technical expertise and real-life experiences, Mike is able to assist clients with solving their problems and complying with regulatory requirements.

KILMER & ASSOCIATES, CPA, P.C.
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