Can Clothing That Has Your Company's Name or Logo on It Be Tax Deductible as an Advertising Expense?
Hats, shirts or other articles of clothing bearing your company’s name or logo can increase the public’s awareness of your presence, especially for a small business with a limited budget. It in effect turns the wearer into a walking billboard for your company. In almost all instances, you will be able to claim the cost of the clothing as a deductible business expense. However, the category you should use depends on how you distribute the items and who receives them.
If you give away the clothing, the expense technically belongs in promotions rather than advertising. However, many smaller businesses lump promotional and advertising expenses together into a single account. The dividing line between the categories is somewhat hazy, although advertising is normally reserved for media presentations, such as print ads and commercials. An example of a promotional expense would be a special you run where every customer visiting your store on Saturday morning receives a free baseball cap with your company name on it.
If the only people given the clothing are your employees who are required to wear the item as part of their uniforms, the expense should likely go into your supply account. This is appropriate if you do not include the items in your inventory and consume all of your purchases over the course of the year.
Some entertainment venues and other businesses sell shirts, hats, bags and jackets bearing the name or logo of the company. These items are typically sold for a profit. The payments for purchasing the items are deductible, but you should include them in your cost-of-goods sold category rather than expenses.
If you give away an article of clothing and it costs you more than $4 per item, you can treat it as a gift. The deductible limit is $25 per gift annually and is limited to one gift for each individual with whom you have a business relationship. The gift should be intended for a particular person or limited group of people to use personally. An example would be a windbreaker that bears your company logo or name; you might choose to have the recipient’s names embroidered on them to personalize the gift. Incidental costs associated with the gift, such as the cost of postage to mail the gift, do not count against the $25 limit.