In the tax reform crosshairs: the advertising deduction

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By Bruce Thompson and Evan M Migdail

The tax deduction for advertising expenses has clearly become a target for Congressional tax reformers. Under current law, advertising costs are fully deductible as an ordinary business expense. Both the House and Senate Tax Committee chairmen are considering proposals to limit the deduction for advertising expenses.

Senate Finance Committee chairman Max Baucus (D-Montana) has released a detailed discussion draft on business tax reform, which includes a proposal to limit the advertising deduction to 50 per cent, with the balance amortised over five years.

According to committee documents, an ‘advertising expenditure’ is defined as any expenditure paid or incurred for the development, creation or placement of advertising, or for any similar activity with respect to advertising. ‘Advertising’ is defined as any message or other programming material which is broadcast or otherwise transmitted, published, displayed or distributed and which promotes or markets any trade or business, service, facility or product…

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