DEFINITION of 'Promotion Expense'
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.
BREAKING DOWN 'Promotion Expense'
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.