Whether you are just starting a digital marketing campaign or thinking about hiring a marketing agency, one of the questions you might be asking is:
"Are marketing expenses tax-deductible?"
The answer is "YES!" The government allows you to deduct marketing expenses used to generate or keep customers. Advertising and marketing expenses qualify as an ordinary, reasonable, and necessary tax deduction. When done right and with professionals, marketing and advertising can have a high ROI.
Marketing and advertising expenses aren't a particularly tricky tax-deduction as long as they are directly related to your business activities. Below we'll break down 8 categories of marketing expenses that are tax deductible, tell you which ones are not, and what is considered marketing according to the IRS.
Possible Marketing Expenses That Are Tax-Deductible
1. Website Expenses
- Designing, developing, and creating your website
- Website fees for hosting and maintenance
- Ongoing website content creation
- Document all of the different accounts and companies you pay each month to deduct website expenses if you use more than one
2. Marketing and Advertising Expenses
- Marketing Plan or Marketing Strategy
- Content Writing
- Sales Enablement
- SEO Services
- Email Marketing
- Graphic Design and Branding
- Display banner ad campaigns (except political sites)
- Paid Media Marketing: Google AdWords or Search Pay-Per-Click (PPC) campaigns
3. Consultant or Marketing Agency Retainer
- Costs for hiring a consultant or marketing agency to conduct any of the campaigns above or below
4. Social Media Expenses
- Paying a consultant or marketing agency (anyone outside your company) to run your social media
- Content-creation expenses
- Fees to companies that manage your social media accounts, and subscription-based social media sites like LinkedIn Pro.
- Linked In, Facebook, Twitter, Instagram, ad campaigns
- Influencer Marketing (May require 1099 contracts depending upon the amount paid)
5. Technology and Marketing Software Expenses
- Monthly costs or annual subscriptions (which generally come with a discount) for software like the following:
- Any CRM, social scheduling tools, or marketing software
6. Print Advertising Expenses
- Ad space in newspapers, magazines or billboards
- Creation and printing of advertising materials like brochures, mailers or business cards
7. Multimedia Advertising Expenses
- Ads on TV, cable or the radio
8. Special Promotions
- Publicity campaigns
- Sponsor for a local event or pay to have your logo featured on a local sports jersey (You can deduct the expenses for any special event with the goal that it would expose people to your business)
- Hosting seminars, webinars, or workshops promoting your business's services
- Swag for clients, influencers, and staff to promote your brand include promotional items like water bottles, t-shirts, and notebooks
Deducting Marketing Expenses vs. Selling Expenses
Business costs for both marketing and selling are deductible, but in separate places on your business tax return.
- If you use your website for advertising, you may deduct web maintenance costs as an advertising expense.
- If you use your website for selling (having a shopping cart, for example), this is a cost of selling and is considered separately.
- Costs for temporary signs are considered advertising.
- Costs for permanent signs (that last more than a year) are not advertising, but signs may be depreciated as long-term assets.
- Advertising as an indirect political contribution is not deductible.
- Advertising on your car: the cost of placing an ad on a vehicle is deductible however, the cost of operating or driving the vehicle is not. Read more about what the IRS says about ads on vehicles here.
- Costs for help-wanted ads are a deductible business expense, but they are not considered marketing or advertising.
- Donations to charities or non-profits are not a marketing or advertising expense. However, these expenses may be deductible in other areas of your business or personal tax return. Check with your accountant for further clarification.
Marketing Expenses That Are Not Tax-Deductible
You can't deduct costs that are primarily personal or hobbies, even though they have some promotion value. For example, if your daughter is getting married and you invite some of your best clients to the wedding, you cannot deduct the wedding costs. You may not deduct costs of personal hobbies carried on with business associates. For example, if you and a client like to go to NASCAR events, you can't deduct these costs as marketing or advertising expenses.
- You cannot deduct advertising expenses associated with research and development activities.
- While you can deduct the cost of putting an advertisement for your business on your car (business or personal), you cannot deduct the cost of driving your car around town as an advertising expense. The IRS specifically discusses this subject, because it's misunderstood.
- Advertising as an Indirect Political Contribution. You can't deduct the cost of advertising in any publication or website used by or for a political party or candidate. No political expenses are deductible for businesses.
With any of these guidelines, you should check with your accountant to learn what tax deductions and filings for right for your business. If you plan your budget a year ahead, you'll want to include marketing as a necessary operating expense that you can deduct from your taxes. This will help you get into the mindset of investing in marketing for your business this year and for each year to come. You'll find you reach your revenue goals faster and have more to deduct from your bottom line.
Read more about which marketing and advertising expenses you can deduct in IRS Publication 535.