Marketing expenses are tax deductible for your business. Proper accounting of qualified marketing expenses can trim your tax bill. For many companies, marketing expenses are a big expenditure. Given the potential benefit to your small business, it helps to know what kinds of marketing expenses can be deducted.
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.
- Don’t be tempted to deduct costs of personal hobbies carried on with colleagues as marketing.
Marketing is a major business expense for many. The intricacies of how things 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. With careful marketing choices and accurate marketing expense tax deductions, you can improve your bottom line and grow your business.
Bernstein Financial Services Inc. provides a wide range of services to individuals and businesses in a variety of industries. We do not provide legal advice. This article is for educational purposes only and should not be taken for business advice about your specific situation. Please schedule an appointment with a Principal at Bernstein Financial Services to help you determine your optimal planning strategies.