A Publication of WTVP

Every business is competing to grow, and growth requires getting the word out about who you are and what you can deliver. Word of mouth is certainly an effective form of advertising, as well as free. I like to think of this type of advertising as the direct benefit of running a well-managed business and knowing your clients. As Peter Drucker said, “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” Still, many companies will engage in further advertising to expand the scope of their brand awareness and increase sales.

Even the best products and services require some form of advertising. Consider the following slogans: A diamond is forever. Be all that you can be. Breakfast of champions. I’m lovin’ it. Just do it. I’m guessing each one of you reading this has conjured up images of these products or brands in your head: De Beers jewelry, the U.S. Army, the Wheaties box, McDonalds, and of course, Nike. Somehow these phrases are retained in our memory for years, often with a catchy jingle.

What do these advertising slogans have in common from a tax perspective? What exactly constitutes an advertising expense in tax law, and are these expenses always deductible?

The cost of producing each slogan you just read qualifies as a tax-deductible advertising expense.

Advertising expenses are typically 100% tax-deductible when paid or incurred. Incurred simply means the good or service (in this case, advertising) has been provided but not yet paid for. The expense must be reasonable in amount and related to the business. Promoting your name before the public can be for gaining immediate sales or developing public goodwill. Take note that although meals and entertainment expenses are generally subject to a 50% deduction limitation, such expenses offered to the general public as a means of advertising and promoting goodwill in the community are considered 100% tax-deductible advertising expenses.

The following is a list of common advertising expenses addressed in the tax code.

Let’s take a look at some examples of advertising expense and how tax law may affect your advertising strategies.

Each situation can involve a unique set of circumstances. Consult your CPA to assist you in determining what expenses qualify as deductible advertising expenses. iBi