1. The tax law allows businesses to deduct advertising and marketing expenses that help retain existing customers and attract new ones.
2. To be deductible, advertising and marketing expenses must be considered “ordinary and necessary” under tax law.
3. Some deductible advertising expenses include reasonable expenses directly related to business activities, goodwill advertising to maintain public awareness, and the cost of providing meals, entertainment, or recreational facilities to the public for advertising purposes.
4. An attorney’s car racing expenses were denied as deductible advertising expenses because the Tax Court ruled that it wasn’t an ordinary and necessary expense for his law practice. – The taxpayer’s car-racing expenses were not necessary or common for a law practice.
– There was no proximate relationship between the car-racing expenses and the taxpayer’s occupation as a lawyer.
– The taxpayer’s primary motive for incurring the expenses was to advertise his law business, but he never raced in the state where his primary law practice was located and did not get any legal business from his car-racing activity.
– The taxpayer’s name and law firm decal appeared in relatively small print on his racing car, which the court deemed to be at the opposite end of the spectrum from traditional advertising methods.
– Meticulous records are necessary to substantiate deductions for advertising and marketing expenses in a bona fide business.
Protect the “Ordinary and Necessary” Advertising Expenses of Your Business
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