As a small business owner, you may be able to deduct advertising and marketing expenses that help bring in new customers and keep existing ones. Even better is that these deductions help small businesses save money on their taxes. Here’s what you need to know about this valuable tax deduction:
Deduction Not Allowed for Lobbying and Political expenses
Generally, small businesses can’t deduct amounts they pay to influence legislation – including advertising in a convention program of a political party or any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate.
Advertising and Marketing Costs Must Be Ordinary and Necessary
An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary. Advertising and marketing costs that are ordinary and necessary are tax-deductible.
Advertising Expenses Include:
• Reasonable advertising expenses that are directly related to the business activities.
• An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.
• The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.
Questions?
The founder of Lipton CPA Associates, located in Florham Park, N.J., Richard Lipton has been a stockholder and manager of family-owned Sam’s Tire Co. in Paterson, NJ, for 10 years. His firm offers business consulting, tax and accounting services – including the area of forensic accounting – to large and small clients. Reach Lipton CPA Associates online at www.liptoncpa.com or call 973-520-8123 for more information.
