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Columns by June Walker: IPs Face Unique Tax Challenges Tax Deductions Are There For The Taking You Say You're Self-Employed -- Will the IRS? Criteria for Self-Employment Do You Have a Business or a Hobby? Proving That You're a Business Keeping Records -- It's Not Just for Taxes Three Ways to Expand Your Business Deductions Can I Deduct Disneyland and Other Questions Mixing Business with Pleasure and Other Gray Areas Quicken for IPs Courses That Qualify Training You Can't Deduct Getting There is Half the Battle Taking Deductions on the Road Getting Credit and Taking Allowances Advertising: Do It, Then Deduct It The Subtle Art of Advertising Deductions Billy Bridesnapper's Start-up Saga Starting Up and Shutting Down Start-Up Wrap-Up Giving Gifts, Taking Deductions

The Subtle Art of Advertising Deductions It's funny (if taxes can be considered "funny"): you can be very subtle in your advertising tactics, use some extremely subliminal persuasion, and still take the expenses as a straightforward tax deduction. On the other hand, if you promote your enterprise in a blatant manner you may be limited in what you can deduct. Truth is, what you may think of as deductible advertising costs, the IRS may categorize as a different kind of deduction. Let's investigate. Meals and Entertainment as Promotional Expenses The deduction rules for meals and entertainment are the same regardless of your business reason for paying for the meal or the recreational event. I'll speak more about these in an upcoming column on meals and entertainment, but for now be aware that you may deduct only 50% of the cost of a meal or drinks for you and a business associate even if the purpose of the meeting is solely to promote your IP business. Although you may think of it as promotional, and therefore want to deduct the entire cost as an advertising expense, the IRS says it is a meals and entertainment expense. And so you get to deduct only one half of your total cost. Feeding the Masses If, however, you offer food or entertainment to the general public, the entire cost is deductible. Thus if realtor Rafael Rodriguez provides hors d'oeuvres and wine at an open house, or Gail Gallery Owner serves champagne at the opening reception for one of her artists, they can deduct 100% of their food and liquor costs. Advertising Expenses in Hiding Remember to think about advertising with an IP mind-set. This involves changing the way you think about what you do and the people with whom you do it. For instance, all those Christmas cards you bought and mailed, did you send them only to friends? Or did you send some to prospective clients? (Hint: cards for prospective clients can be written off.) Keep in mind that if you're engaged in an activity that's not part of the normal course of your business but related to it, the advertising expenses are deductible. For example, if Lorenzo Landscaper teaches a Saturday morning seminar on winterizing your landscape, the cost of advertising the seminar is deductible. That holds whether or not there is a charge for admission. If Mark Musician produces a compact disc of small-group jazz improvisations, or if Lorenzo Landscaper puts out a manual, Tips for Winterizing, or if Constantine Collector makes a software program on the provenance and value of various World War II memorabilia, the cost of advertising these products is deductible. There's More to Advertising Than Meets the Eye -- and Then There's Even More! Besides giving exposure to your business, there's another benefit to advertising: the very fact that you advertise your product or service helps to establish profit as a motive for doing what you're doing. It's evidence -- even if you're not making much money right now -- that you're not just engaged in some hobby. And, remember, if it's a business (rather than a hobby), you get to deduct your expenses even if they far exceed your income. So advertise like crazy -- each bit of marketing or promotion is more proof for the IRS that you're embarked upon a professional life, not indulging in a hobby. Actually, I take that back. Advertise like a money-smart, market-wise IP: advertise in the manner and the media that will be most effective for your business. (c) 2000 June Walker. All rights reserved. We'd love to hear your feedback about this column, or put you in touch with June Walker if you like. You may also like to see her biography.