Can a business owner write off promotional giveaways?

[cwilliambrown]

Thanks so much! That does make sense. I appreciate you taking the time to further explain. Enjoy your day!

@AnnetteB6 

[mdsd7712]

I have a question regarding the value of a giveaway for promotional purposes.

If the item is purchased NEW then demonstrated before the giveaway, it becomes used.

(in this case it is cordless power tools)

what value would one place on the used item for deduction?  would it still be the full cost value to deduct?

(the giveaway recipients do know this is the case, that the tool they win will be tested and videotaped before the item is sent)

and

on the otherside, does the “winner” need to declare the value of the item they won on their taxes?

[Critter-3]

The incidental use for demonstration purposes would not reduce the cost of the item unless you use it for like a year for demonstration purposes then the value of the item would be reduced by the depreciation of the asset.  

So if you buy it for $100 and demonstrate it once then the cost of the giveaway is $100.  

If the value (cost or you or depreciated cost) is $400 or more you need to give the "winner" a 1099-misc for the value of the item  or a W-2G if the winner put money into the contest  and they need to report it on their return. 

[tagteam]

@mdsd7712 

You can expense the item(s), at your cost, as advertising (or other) costs if you bought the item(s) for that purpose.

See https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-...

The recipients technically should report the value of the items received on their returns.

[AJ06]

If a restaurant "awards" a construction business coupons for free food (3 free meals per week for three years) in 2020 and sends an award letter stating this, does the construction company have to report the unused food coupons if they have four months of unused coupons in 2020? The restaurant also sent  a1099 to the construction owner for the total amount of the prize winnings.

[MichaelL1]

If your construction business gets a 1099 for the value of meals "awarded" to the company, the 1099 full amount should be reported to match IRS records.

Then if you did not actually get the full amount of the 1099 or the Fair Market Value was less than the 1099 amount you should make an adjusting entry to the income and reduce it by the difference in the 1099 and the Value received. 

For example if I get a 1099 for a car I won for $12,000 and the car is immediately sold for $11,200, then I would report the 1099 full amount ($12,000) and take a $800 reduction in income so the net reported is $11,200.

[Mike9241]

selling for less than FMV might not work.  some decades ago there were cases of winners on prize shows reporting less than FMV (1099 amount) for some of the prizes they won because they sold them for less. the IRS and courts shot them down. things like cars and boats had to be reported at sticker price. but the key is - is this still the IRS position.

[AJ06]

@MichaelL1 

I did not sell the unused meal coupons, I still have them in hand. So this means I report the full amount of the 1099 and make no adjusting entries?

[Critter-3]

Are the coupons still valid  ?    Can your business repackage them and  give them away as a business promotions ?   If so the cost can be considered advertising expenses if you  put your name on them somehow. 

[AJ06]

@Critter-3 

The coupons were received at the end of March 2020 and were used until the end of July. I have unused coupons from Aug 2020-March 2023 as they were good for 3 free meals a week for three years.  

[Critter-3]

So these were for meals fed to your employees/contractors?  If so then deduct the meal costs to offset the income. 

[AJ06]

@Critter-3 

Yes, they were meals fed to employees. Do I deduct the full amount of the unused coupons on 2020 taxes or do I deduct yearly until 2023?

The 1099 was for the full amount (all 3 years).

[Critter-3]

Only deduct the used portion on the 2020 return even though the total income is on the 2020 return. 

[AJ06]

@Critter-3 

Thanks for the clarification!

[sarahblack]

This answer is different than what Expert Annette is saying. She said that only the costs that go into fulfilling the gift card can be deducted. Not the value of the gift card. Can you please clarify what you mean? And what's correct?