Business Expenses

Super bowl weekend, what were you doing?  I am specifically talking about Sunday afternoon to early evening.  If you were like the average American, you were either in a bar watching the big game or you might have been at a friend’s house watching the game with your buddies.  Several images come to mind when you talk about the Super Bowl.  First, the obvious is the football game itself, this year with the Denver Broncos taking on the Carolina Panthers.  Second, especially if you are at a friend’s house, the image is the food.  Usually everybody brings their best dish.  Images of Pizza, Pasta, Hot Wings, Burgers and other foods come to mind.  One last image that I want to talk about this week is the commercials.

I read a survey last week that stated that over 25% of people who watch the Super Bowl game do not actually watch the game.  They are there to watch the commercials.  With so many people paying attention to the hype of the commercials, it is understandable how Fox Sports is able to get companies to ante up an average of 4 million dollars per 30 second commercial spot.

Because of this, and with so many people starting new businesses this year, I thought that it would be good to go over what the rules are for deductions.  To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.  This rule can actually apply to any of the expenses in part II above. 

To take Advertising as an example, as a large company such as Coca-Cola, you should be able to deduct the 4 million dollar Super Bowl spot.  This spot would be a pretty hard sell if you are a mom and pop company.  You get the idea, it needs to be ordinary and necessary in your business environment.  It also needs to be directly related to your business.  Keep in mind that Super bowl commercials are not the only advertising that could be included.  You can deduct as advertising any expense that helps get your goods or services out to the public.  You can also deduct any signage that helps the general public know where you are.  Don’t forget about any advertising in the newspaper, or the person who distributed leaflets that you had printed.  If you signage is expected to last more than a year, you may need to depreciate this over more than one year.

These rules may change by the next super bowl.  I understand that there is a proposal to cut the amount that will be allowed to be deducted by 50%.  It is part of the nation and the tax reform that is going on as of late with this congress.  It will be interesting to see if this does take place.  The advertising dollars have significant positive influences on the companies selling advertising media.  It will also mean that the companies shelling out the large dollar ads during Super bowl.

Now that the Super Bowl is over, the world will concentrate on the next big sporting event for advertising.