Is everything you spend on marketing tax deductible? Yes, for the most part, but not necessarily. Here are some basic rules for writing off advertising and other marketing costs. We also look at some marketing-expense tax traps to avoid.
Ordinary marketing expenses
Most ordinary expenses for marketing, such as the cost of ads in print and online, are deductible. There is no dollar limit or other special rules for determining deductibility of marketing costs.
Other examples of such ordinary (fully deductible) advertising costs include these.
Package-design costs that are part of an advertising campaign. (But keep in mind that this write-off has been court-approved, yet the IRS continues to dispute it.)
Trap: Signage for your business that's expected to last for more than one year is not ordinary (immediately deductible) advertising costs. These include signs on storefronts and business vehicles, as well as signs for trade shows, regardless of how minimal the amount involved. However, the cost can be written off immediately if you qualify for first-year expensing or 100 percent bonus depreciation.
Promotions and prizes
You incur various costs to promote your business. These costs create goodwill that produce benefits for your company over the long term, but are still currently deductible.
- Prizes and awards
- Sponsorship of teams and events
Trap: Coupons and discounts for customers are not deductible. Instead, they are simply a reduction in the gross receipts from the sales they help to generate.
Business owners view social media (Facebook, LinkedIn and Twitter) as a no-cost or low-cost marketing activity. However, there may be deductible costs.
- Fees paid to freelance bloggers
- Fees paid to outside social media companies to manage your accounts
- Cost of Google Adwords
- Subscriptions to premium social media sites, such as LinkedIn Pro
- Paid blogging platforms, such as Blogspot add-ons
Trap: Amounts paid to employees who manage social media for your business are not deductible as advertising or marketing expenses. Instead, they are deductible as wages, which are subject to payroll taxes.
Be careful to track your advertising costs. These are usually reported as a separate, deductible item on your tax return. When in doubt, work with your tax advisor.
Barbara Weltman is an attorney and prolific author. She wrote J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business. She is a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business and host of Build Your Business radio. Follow her on Twitter @BarbaraWeltman.
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