I'll try to explain further:
1 -- You can deduct the commission you pay to the staff member who performs the service when the gift certificate is redeemed. That is part of the cost I mentioned earlier that you can still deduct. However, you will only deduct this commission when the service is performed.
You cannot deduct it now because of the outstanding gift certificates since some may never actually be redeemed. That would be like paying the commission to the staff member now for all the gift certificates that are outstanding just in case they are redeemed some day. Your staff member would be happy for the extra income, but it is not logical for you to prepay (or pre-deduct) that cost.
I understand that it seems that this would be an advertising expense, but you have not spent anything by giving a gift certificate for a future service at your business. You have not incurred an expense for your business by giving away a future service.
If the gift certificates had been for another business (WalMart for example), then you would have incurred an actual cost to purchase the gift certificates given away. You would then be able to deduct the money that you spent in advance to purchase the gift certificates.
2 -- Claiming the gift certificates as a gift valued at $25 is a bit problematic because gifts are deductible if given to current clients instead of potential clients.
When the gift certificates are redeemed, then you will see the savings on your tax return in the reduced income instead of through deducting the value of the gift certificate. Suppose 50 $100 certificates are redeemed in 2020. That is $5000 in income that you will not be reporting on your Schedule C.
If it costs you $50 in commissions and supplies to perform the service shown on the gift certificate, you will still be deducting $2500 in expenses against your other income.
Hopefully this helps.
@cwilliambrown
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