| If you are the publisher of a newspaper, magazine, or other periodical, you can deduct the costs of establishing, maintaining, or increasing circulation as a current business expense. However, this general rule of deductibility is limited. A current deduction is not available for expenditures for the purchase of land or depreciable property or for the acquisition of circulation through the purchase of any part of the business of another publisher. In addition, a deduction is not permitted for the cost of purchasing another publisher's list of subscribers. These expenditures must be capitalized.
A publisher may only take a deduction for circulation costs in the tax year in which they were paid or incurred. This rule applies even if the publisher reports as income only the allocable part of prepaid subscription income relating to the portion of the subscriptions to be fulfilled in the taxable year. A current deduction is only available to the publisher making the circulation expenditures.
Only certain expenses are currently deductible as circulation costs. In order to qualify as a deductible expense, expenditure must have been incurred to increase circulation. The Internal Revenue Service has concluded that expenditures incurred for the production of the periodical, such as binders, tab guides, and loose-leaf paper, are not deductible.
As a publisher, you are not required to deduct circulation costs as a current business expense. Instead, you can choose to capitalize the portion of any expenditure made to establish, maintain, or increase the circulation of a periodical that is properly chargeable to a capital account. If you elect to capitalize, you must do so for the total chargeable portion of the expenditure, and once the election is made, it is binding for all future tax years unless the IRS approves a change.
In addition, publishers choosing not to deduct qualifying circulation costs may elect to amortize them over a three-year period beginning with the year in which the expenditures were made. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |