Promotion Expense

A promotion expense is a cost that a business incurs to make its products or services better known to consumers, usually in the form of giveaways. The IRS considers promotion expenses to be tax-deductible as business expenses, provided they are ordinary and necessary. When writing off promotion expenses on their tax returns, companies should take care to ensure that these expenses would not more accurately be classified as advertising expenses or charitable contributions.

Distinguishing advertising and promotional expenses is important. The general rule of thumb is that advertising is a form of paid distribution of a controlled marketing message. Promotion is more general and can include generic, non-message specific things like brand awareness. Costs for promotion expense and advertising expense must be categorized correctly and accounted for separately.

If a tax software company mailed out CDs containing a free version its federal tax preparation software to thousands of households in the hopes of selling its corresponding state tax preparation software, it could deduct the costs of the CDs and their packaging as promotion expenses. Similarly, if a lawn-care company offered a free front-yard mowing to every house in a neighborhood in the hopes of earning new customers, it could probably deduct its costs to perform this service as promotional expenses.