Can a business owner write off promotional giveaways?

[JillS56]

Yes, you can deduct promotional giveaways as an advertising/promotional expense.  The IRS states that advertising and promotional costs are deductible because they are part of the cost of doing business, just as are items such as payroll, raw materials, leased commercial space, and property taxes.  You can only deduct the cost of the giveaway.

Small Business Advertising and marketing costs

[sarahblack]

That article didn't really answer my question. Here's my specific question, so it doesn't get confused with the topic title - Can I write off the discount a customer used on a purchase? You and Annette are saying different things. If I price an item at $100, customer uses a 20% off code, pays $80, can I say that I "spent" $20 to make that $80? I have the COGS to prove that it was worth $100. Or - Does by only claiming $80 already include my $20 write off?

[ThomasM125]

You can't deduct the value of the discount. You can deduct the cost of the goods you sold, but that means what you paid for them. The fact that you sold them at a discount does not entitle you to an extra deduction in addition to what you paid for the items that you sold.

[cwilliambrown]

Hi Sarah, I had this EXACT question a couple of years ago. I was told that I could NOT deduct the value of something I gave away unless it was something I had purchased. For example if I purchased a 100% gift card from Walmart and used it as a promotional giveaway, I can deduct it. If I gave away my own gift certificate with a value of $100, I can NOT deduct it.  In my case we own a Salon & Spa and the gift certificate could only be used with our business. 

I was told the same thing applies when reducing the cost of a service. For example, if run a promo trying to gain new spa clients that discounts a $100 service to $80. I was told that I can NOT deduct the $20 discount. 

I will try to find the original question and answers and post a link here. Even though I knew it was for marketing purposes, the explanation as to why I couldn't deduct it also made sense.

UPDATE: This is the post where I asked the question. Annette answered it on page 1. I've taken her advice, but if something she stated is inaccurate or has changed, I'd love to know myself!

[Vanessa A]

Yes, the advice that @AnnetteB6 gave when she originally answered the question is still accurate and correct.  You cannot deduct gift certificates given away. When they are redeemed, you still cannot deduct the value of the gift certificate, you simply deduct the cost of goods sold the same as you would any other time, but you will not have income to offset it.

If you are in a service industry, you will see less of a tax benefit when discounting your services or giving gift certificates as you cannot enter an expense for the physical work you performed, only supplies and expenses you incurred in performing that service. 

[cwilliambrown]

@Vanessa A  Thanks for confirming the advice given by @AnnetteeB6

And thank you for adding that last paragraph regarding the service industry.  Have a wonderful Friday!

[cwilliambrown]

I have a similar, related question. If I refund a client's service to a gift card, as opposed to crediting the amount back to their credit card, is this still considered a refund and my deduct it as such? 

[JulieS]

Yes, you can still report that amount as a refund. 

[cwilliambrown]

@JulieS

Thanks for your quick reply.. I have a follow-up question. Pretty sure the answer is yes but would like someone to confirm.

Occasionally by booking system will screw up and cause my CC terminal to double charge a client service. The booking system is unaware it has done so, so I have to go into the Clover Mini POS and manually refund one of the charges.

It's my understanding that my fortunate account processor does not deduct refunds from the 1099k they sent me. Am I correct in assuming that I should also deduct this refunded double charge on my return?

[DianeW777]

Yes, the Form 1099K is showing all money sent to you then you must enter your refunds to customers separately to reduce your overall income for amounts you returned to customers.

@cwilliambrown

[Rainmaker911]

Can I deduct promotional ticket giveaways to an event that I produce? We sell tickets for $24.99 and giveaway tickets as promotions.  Can we deduct the ones that get redeemed? 

[Vanessa A]

Yes, because you would consider this a seat or spot sold that you are giving away as a promotion.  So when it is redeemed, you would be able deduct it as a promotion. 

[Critter-3]

I would go no on this ... since you did not "sell the seat" you just gave it away for zero income thus you will simply have less income to report.   You technically sold the seat for zero income. 

This is not the same thing as hard inventory where you paid for the item or a specific promotional item you paid for  where the cost would be reflected in the COG or expenses on the return.  

[Ac413]

If I gave away cash, is that deductible as well?

[tagteam]

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@Ac413 wrote:

If I gave away cash, is that deductible as well?

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That is not exactly a narrow and targeted question. Give away cash to whom and for what?

The subject of this thread centers around promotional giveaways during the ordinary course of business. If you are giving away cash as a promotion (e.g., in order to induce customers to do business with you), then you could deduct the cash given to (potential) customers as an advertising expense.