Businesses may deduct all ordinary and necessary business expenses, including advertising expenses. But knowing which advertising expenses are tax-deductible and the limits on these deductions is more complicated than you might think.
Below we dive into the expenses that are considered advertising for business tax purposes, and which expenses are not deductible.
- Advertising and promotional expenses are generally tax-deductible as business expenses.
- Ads for personal activities, including ads on political candidates’ websites, aren’t tax-deductible.
- Advertising costs for starting a business are part of capital expenses that are depreciated as part of your total startup costs.
- You may be able to deduct goodwill advertising that keeps your business name in front of the public.
What's Considered Advertising?
Advertising is a broad category of business expenses that includes business activities such as:
- Advertising in newspapers and magazines, and on TV or online
- Direct marketing
- Sponsorship of sports teams and creating promotional items like mugs, hats, T-shirts, or pens
- Email newsletters, pay-per-click advertising, and SEO services
- Advertising materials like business cards, brochures, and web pages
- Advertising events such as a publicity campaign or special promotional event
Tax-Deductible Advertising Expenses
You may deduct expenses for advertising your business to customers. It's important to note that these must be ordinary and reasonable expenses for your business, but not personal expenses. Some examples would be the printing of business cards, running newspaper, TV, and radio advertisements (including production costs), and the costs for setting up and operating your business website.
Doing business from your home office? You can deduct advertising expenses because they are the same, no matter where your business is located.
You can deduct the cost of providing meals, entertainment, or recreation facilities to the general public as advertising or promotional activities. The cost for meals isn't subject to the usual 50% limit for these costs for other business purposes. For example, if you have a grand opening event for your local community that includes passed appetizers and a DJ, the IRS considers this advertising, and you can deduct the full cost of the event, including food and entertainment.
The Internal Revenue Service (IRS) says your business can also deduct the cost of goodwill advertising to keep your name in front of the public. For example, a company selling beer that promotes responsible driving in an ad on Facebook would probably be deductible.
Distributing identical items with your company’s name on them, like key chains, calendars, or pens, is pretty common, and the costs of these items are tax-deductible advertising expenses if they’re less than $4 each or are promotional materials to be used at your business’s location.
Temporary signs are considered advertising, but permanent signs (that last more than a year) are not advertising and may be considered tangible personal property and may be depreciated.
The IRS considers all costs for starting a new business as capital expenses. That means they are like an investment that you expense over time. All startup costs are lumped together when figuring tax deductions. You may deduct up to $5,000 of startup costs, including advertising, in your first year of business. The rest must be depreciated over time.
Expenses That Are Not Deduct
You may not deduct costs that are primarily personal, even though they may have some promotional value. For example, if your daughter is getting married and you invite some of your best customers to the wedding, you can't deduct the wedding costs associated with those customers.
Political or Personal
You can't deduct the cost of advertising in any publication or website used by or for a political party or candidate. Political expenses of any kind are not deductible for businesses.
You may not deduct the costs of personal hobbies carried on with business associates. For example, if you and a customer like to go to NASCAR events, you can't deduct these costs as "advertising."
Ads on Vehicles
This cost is probably the most misunderstood of any advertising expense. You can deduct the cost of printing out an advertisement for your business that you will put on your car (business or personal), but you can't deduct the cost of driving your car as an advertising expense. The IRS specifically discusses this subject because it's misunderstood.
“Putting display material that advertises your business on your car does not change the use of your car from personal use to business use,” the IRS states on its website. “If you use this car for commuting or other personal uses, you still can’t deduct your expenses for those uses.”
Advertising Expenses on Business Tax Returns
For sole proprietorships and single-member LLCs, advertising expenses are recorded in Part II- Expenses of Schedule C.
For partnerships and multiple-member LLCs, advertising expenses are recorded on the line for “Other Deductions” of Form 1065: Partnership Income Tax Return.
For corporations filing a corporate tax return on Form 1120, advertising expenses are recorded in the Deductions section.
Frequently Asked Questions (FAQs)
How do you write off advertising?
Writing off advertising and other business expenses is the process of deducting these expenses on your business tax return. Gather up all your records for what you spent on advertising and check with a licensed tax professional to make sure the specific advertising expenses you want to write off are deductible. Then you can include the deductible advertising expenses on the business tax form for your specific business type.
What advertising expenses are not deductible?
In general, any advertising that is primarily personal or is used for a non-business purpose isn’t deductible as a business expense. Non-deductible advertising expenses include advertising for political purposes, donations to charities, and advertising for personal hobbies. You also can’t deduct the cost of driving around your car with your company’s ad or logo on it.
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