Marketing is often a major business expense, and essential for helping your business grow. Did you know that many of your marketing expenses may also help you save on taxes? As a business owner, understanding which marketing costs are deductible can reduce your taxable income and improve your bottom line.
Which Marketing Expenses Are Deductible?
Marketing expenses are considered ordinary and necessary expenses that help promote and grow your business. The IRS generally allows you to deduct these costs as part of your business’s overall expenses.
Here’s a comprehensive guide to deducting small business marketing expenses and ensuring you’re taking full advantage of the tax benefits:
- Advertising Costs: Expenses for online and traditional advertising campaigns (Google Ads, Facebook ads, print ads, radio, and TV spots).
- Website Development and Maintenance: Costs associated with creating, hosting, and maintaining your business website.
- Social Media Marketing: Paid social media promotions, influencer partnerships, and boosted posts.
- Promotional Materials: Business cards, flyers, brochures, banners, and other promotional materials.
- Email Marketing Tools: Subscription fees for email marketing platforms such as Mailchimp, Constant Contact, or other similar services.
- Branding Costs: The design and production of logos, branded merchandise, and other elements that help define your company’s identity.
- Sponsorships and Event Marketing: Sponsoring local events or attending trade shows and industry conferences can often be deducted if they are done to promote your business.
- Content Creation: The cost of producing blogs, videos, podcasts, and other forms of content to market your business.
The intricacies of how different marketing expenses are treated for tax deductions are significant. We recommend that you document one time and recurring monthly marketing expenses with care. Measure your results and eliminate tactics that don’t pay off. Be sure not to overspend simply for tax benefits—focus on high-ROI strategies that contribute to business growth.
With careful marketing choices and accurate marketing expense tax deductions, you can improve your bottom line and grow your business.
Advertising expenses are deductible—with some exceptions
Advertising is often the first thing that comes to mind when thinking about deductible marketing expenses. You can deduct all the costs for developing advertising, producing it, and placing it. It doesn’t matter if your advertising is a billboard, flyer, TV commercial, social media, or digital Google AdWords.
Be aware of some exceptions:
- Advertising signs are considered marketing expense. Wayfinding signs and other permanent signs that last more than a year and that are not promoting something for sale do not count. These must be depreciated as long-term assets.
- The cost of producing and affixing signs on vehicles is deductible, however not the cost of driving the vehicle.
- Advertising for a politician, issue, or cause is considered an indirect political contribution, and thus is not deductible.
- Costs for help-wanted ads are a deductible business expense, but they are not considered advertising expenses.
Your website is likely deductible
If you are like most small businesses, your website is an important marketing tool. If the main purpose of your website it to advertise and market your business, the costs of designing, developing, and creating it are marketing expenses that are ordinary and necessary. You can also claim a tax deduction for website hosting, website software, website maintenance, and ongoing website content creation.
Some exceptions apply:
- In some cases, your website is your product. You may have a video or game business hosted on your website. Your website might be a membership community. In these cases, the website is not primarily used for advertising and its costs are not marketing expenses.
- Computer hardware hosting your website is a capital expense, not a marketing expense, and thus must be depreciated.
Deducting software expenses is tricky
Some software is clearly a marketing expense. You might subscribe to Adobe Suite and other “software as a service” providers or use a CRM and teleconferencing app to manage customers. These qualify as marketing expenses.
Software that you develop and market, however, is a capital expense. Some of the development may qualify as research and development costs, but the rules are changing. We recommend talking to your tax planner, so you don’t get tripped up by the complexities of software tax deductions.
Deducting marketing expenses for a new business
When starting up a new business, you can rack up significant marketing expenses before your official launch. You can claim tax deductions for start-up marketing if you incur the cost before the day your business begins. Common deductible marketing expenses for a start-up include hiring a public relations agency to help prepare a press release, a developer to create a website, and a designer to create business cards and brochures.
Marketing expenses your business cannot write off
The rules of what counts as a qualified marketing expense you can deduct when you file your tax return are complex and they are changing. A few things to keep in mind include:
- You cannot deduct advertising expenses associated with research and development activities.
- Donations to charities are not a marketing or advertising expense; however, these expenses may be deductible in other areas of your business.
- If you run a promotion that gives customers a discount on products or services, you may not deduct the amount of the price reduction as an expense.
- Any marketing efforts that promote the business owner personally rather than the business itself (e.g., an influencer promoting themselves) might not be deductible.
- If your business sponsors a political campaign or party, the associated costs are not deductible.
Conduct an End-of-the-Year Marketing Review
Marketing is a necessary expense for growing your business, but it doesn’t have to be a financial drain. By understanding how to deduct marketing costs, you can reduce your taxable income and reinvest those savings back into your business. Keep accurate records, work closely with your accountant, and make sure your marketing investments are not only driving revenue but also delivering tax benefits.
Bernstein Financial Services Inc. has guided business owners through the complexities of the tax code and improved their profit margins since 1989. The information provided in this blog post is for general informational purposes only and is not intended as legal advice. Every business and financial situation is unique, and the strategies discussed may not be applicable to your specific circumstances.
For personalized guidance, please schedule a consultation appointment with a Principal at Bernstein Financial Services to help you determine your optimal planning strategies.