Almost any type of business-related advertising is a currently deductible business operating expense. You can deduct advertising to sell a particular product or service, to help establish good will for your business, or just to get your business known. Advertising includes expenses for:
- business cards
- advertisements in the local yellow pages
- newspaper and magazine advertisements
- trade publication advertisements
- radio and television advertisements
- advertisements on the Internet
- fees you pay to advertising and public relations agencies
- package design costs, and
- signs and display racks.
However, advertising to influence government legislation is never deductible. “Help wanted” ads you place to recruit workers are not advertising costs, but you can deduct them as ordinary and necessary business operating expenses.
Good Will Advertising
If it relates to business you reasonably expect to gain in the future, you can usually deduct the cost of institutional or “good will” advertising meant to keep your name before the public. Examples of good will advertising include:
- advertisements that encourage people to contribute to charities, such as the Red Cross or similar causes
- having your business sponsor a Little League baseball team, bowling team, or golf tournament
- giving away product samples, and
- holding contests and giving away prizes—for example, a car dealer can deduct the cost of giving a car away.
However, you can’t deduct time and labor that you give away as an advertising expense, even though doing so promotes good will. You must actually spend money to have an advertising expense. For example, a lawyer who does pro bono work for indigent clients to advertise his law practice may not deduct the cost of his services as an advertising expense.
Giveaway items that you use to publicize your business (such as pens, coffee cups, T-shirts, refrigerator magnets, calendars, tote bags, and key chains) are deductible. However, you are not allowed to deduct more than $25 in business gifts to any one person each year. This limitation applies to advertising giveaway items unless they:
- cost $4 or less
- have your name clearly and permanently imprinted on them, and
- are one of a number of identical items you distribute widely.
Example 1: Acme Press orders 1,000 ballpoint pens with its name and company logo printed on them and distributes them at book fairs, bookstores, and conventions. Each pen costs $1. The pens do not count toward the $25 gift limit. Acme may deduct the entire $1,000 expense for the pens.
Example 2: Acme buys a $200 fountain pen and gives it to its best-selling author. The pen is a business gift to an individual, so Acme can deduct only $25 of the cost.
Signs, display racks, and other promotional materials that you give away to other businesses to use on their premises do not count as gifts.
The cost of a business website is a deductible business expense. You can use the site to take orders from customers or just to publicize the products or services your business sells. You can deduct the cost of designing the site and maintaining it—for example, the monthly charge you pay to an Internet access provider.
Signs that have a useful life of less than one year—for example, paper or cardboard signs—are currently deductible as business operating expenses. However, a permanent metal or plastic sign that has a useful life of more than one year is a long-term business asset, which you cannot currently deduct as a business operating expense. Instead, you must either depreciate the cost over several years or deduct it in one year under Section 179.