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Tax Reform Proposal Would Slash Advertising Deductions

February 28, 2014 By Amanda L. Snyder

U.S. Rep. Dave Camp (R-Mich.), the chairman of the U.S. House of Representatives’ Committee on Ways and Means, released the Tax Reform Act of 2014, the latest draft aimed to update and simplify America’s tax code, Wednesday. While he recommended lowering tax rates for many individuals and businesses, he also advised cutting the deduction for advertising expenses in half with the other portion amortized over 10 years.

Currently advertising is 100 percent deductible. However, advertising expenditures actually are not addressed in the current U.S. Code, but the IRS allows taxpayers to treat those expenditures as an ordinary and necessary business expense, which is deductible, according to the Tax Reform Act of 2014’s executive summary.

Camp’s proposal would alter that allowance in section 3110 of the bill that indicates the deduction reduction. The policy, if approved, would be phased in, beginning in tax year 2015, with an 80 percent deduction and 20 percent amortization until 2018 when the 50/50 percent sets in, according to the bill. An exception would apply to the first $1 million spent on advertising, which could be expensed entirely. That number would lower if more than $1.5 million were disbursed and be completely phased out for payments more than $2 million.

The Joint Committee on Taxation estimates this measure would increase the government’s revenues by $169 billion from 2014 to 2023, according to the act’s executive summary.

The advertising industry has been fighting this measure since it first came up as a possibility (then as 50 percent amortized over five years) in U.S. Senate Committee on Finance Chairman Max Baucus’ tax code overhaul draft in November.

"It's crazy that they kept this in there,” Clark Rector, executive vice president of government affairs for the American Advertising Federation, said to Adweek. “What boggles my mind is that extending the amortization over 10 years is called a 'simplification.' Beyond that, it's a sledge hammer to business, a disincentive to advertise and counterproductive to stimulating the economy."

 

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