What is a 'Promotion Expense'

A promotion expense is 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'

Distinguishing advertising and promotional expenses is important. The general rule of thumb is that advertising is a form of paid distribution of a controlled marketing message. Promotion is more general and can include generic, non-message specific things like brand awareness. Costs for promotion expense and advertising expense must be categorized correctly and accounted for separately.

Promotion Expense Examples

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.

RELATED TERMS
  1. Promotional Budget

    A promotional budget is money set aside to promote a business's ...
  2. Business Expenses

    Business expenses are costs incurred in the ordinary course of ...
  3. Marketing

    Marketing refers to the activities of a company associated with ...
  4. Four Ps

    Often referred to as the marketing mix, the four Ps are the categories ...
  5. Promotional CD rate (Bonus CD rate)

    A limited-time offer of a higher rate of return on a certificate ...
  6. Direct Marketing

    Direct marketing is a form of advertising in which companies ...
Related Articles
  1. Small Business

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
  2. Tech

    Tax Tips for Deducting Investment Management Fees

    Investment expenses can be deducted from your taxes when three main criteria are met. Here's how they work to help you maximize your tax deduction.
  3. Taxes

    How To Deduct Your Job Search Expenses

    With approximately 12 million Americans out of a job right now, many people are spending significant dollars to be noticed by potential employers. Fortunately, some of these job-search costs ...
  4. Insights

    Trump's Infrastructure Plan May Hit a Pothole

    His $1 trillion plan may crumble if Republicans end key deductions, slashing contractors' profits
  5. Taxes

    Which Is Better? Tax Preparer or Tax Software

    Every taxpayer – and every year – is different, so here are four factors to help you decide whether a tax pro or software is best for you.
  6. Taxes

    Key Steps In Choosing The Best Tax Preparation Software

    U.S. taxpayers left over $1 billion on the table in missed tax deductions in 2013. Would using tax software prevent you from contributing to this unclaimed cash?
  7. Small Business

    7 Companies With Big Advertising Budgets

    Here's what the corporations with some of the biggest advertising budgets in the U.S. spend their money on.
  8. Taxes

    Do Your Research Before Claiming These Deductions

    Be sure to read the fine print about any deduction or credit that you’re planning to claim.
  9. Small Business

    How is Programmatic Advertising Changing Media?

    Understand what programmatic advertising is as well as the technology that drives it. Learn about the top four ways programmatic advertising is changing media.
  10. Taxes

    7 Commonly Overlooked Tax Deductions

    Don't pay more taxes than you have to because you've missed taking legitimate tax deductions. Here are just a few you may have overlooked.
RELATED FAQS
  1. What are the most common operating expenses for an online business?

    Learn about the common expenses of online businesses and find out about some of the tax implications of new business expenses ... Read Answer >>
  2. Why are capital expenses (CAPEX) treated differently than current expenses?

    Learn the difference between capital expenditures, or CAPEX, and current expenses, and determine why they are treated differently ... Read Answer >>
  3. What is the difference between an operational expense and an administrative expense?

    An operating expense covers the production and marketing of products and services, whereas an administrative expense covers ... Read Answer >>
  4. Difference Between an Operating Expense and Capital Expense

    Learn more about the differences between an operating expense (OPEX) and a capital expense (CAPEX), and see how they are ... Read Answer >>
  5. What are the different types of operating expenses?

    Learn about the different types of operating expenses and how they impact companies. Some are fixed costs while others are ... Read Answer >>
  6. How operating expenses and cost of goods sold differ?

    Operating expenses and cost of goods sold are both expenditures used in running a business but are broken out differently ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center