Ask the taxgirl: Are Promotions and Giveaways Deductible?

Taxpayer asks:

Good Morning Tax Girl,

Thank you for this opportunity to ask you this question. I have a shop where I sell coffee among other things. I have the usual punch card for coffee drinks- buy 9, 10th one free. Is that 10th one tax deductible for my operation and if so would you kindly direct me to the right info?

Thanks again,

Taxgirl says:

It’s sort of deductible.

When you give away items – like a free cup of coffee – at your place of business as part of a promotion, you can deduct the cost of the items but not the retail value. In other words, if that cup of coffee costs you $.35 and you would normally sell it for $1, you can only deduct $.35. That’s the real cost of the promotion to you.

If, however, you purchased something at retail value to give away (i.e. you bought a chocolate bar to accompany the coffee), then you can deduct the actual retail value. Of course, realistically, that works because it’s still the actual cost to you (i.e. the chocolate bar costs you $1, you can deduct the full $1).

Don’t forget that you can also deduct the costs of promoting the give away, such as the cost of the punch cards and any signs or advertising.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Photo credit: Creative Commons Attribution ShareAlike 2.0, Julius Schorzman

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