Business owners have a lot to do when running their companies. One important activity is filing taxes. As you prepare the tax return for your company, it’s necessary to understand what constitutes a business expense as defined by the Internal Revenue Service. You want to file your returns properly and get the most deductions allowed while also avoiding mistakes that can lead to penalties and interest payments.
How to Tell If Something Is a Marketing or Advertising Expense
When you look at your return, you have a few options for the business card expense. But do you list it under supplies, advertising, or legal and professional services? Most accountants, bookkeepers, and tax preparers would say it’s an advertising expense because you hand them out to prospects at networking events to generate new business.
Anything that promotes your business and gives it attention can be considered an advertising or marketing expense.
Since you are attempting to generate leads for your business, it’s considered an advertising or marketing expense. On the profit and loss form for you tax return, the IRS deems most types of advertising or marketing costs to be a business expense that can help to lower your overall tax liability. However, there are a few marketing and advertising costs that are not deductible.
Although you can deduct market research as an advertising/marketing expense, you cannot deduct advertising costs that are associated with research and development of new products or services for your company. Other non-deductible advertising expenses include any activity that is primarily personal such as inviting some clients to your child’s wedding and reception. You cannot deduct the cost of the meals for these business guests. Another example of non-deductible business expenses is the costs of personal hobbies such as golf retreats that you share with business clients.
Your website is a form of advertising. However, if you have an ecommerce website with a shopping cart, then your website is a selling cost and not an advertising cost. Temporary signs such as billboards are an advertising expense, but permanent signs that are up for more than a year aren’t deductible as an advertising expense.
Examples of Marketing Expenses
Marketing and advertising expenses take many different forms. The below list of promotional activities are all deemed as advertising or marketing expenses by the IRS.
- Business cards
- Domain names
- Print advertising
- Website hosting services
- Video production costs
- Radio ads
- Television commercials
- Market research
- Public relations costs
- Printed promotional materials such as pens, mugs, bookmarks, memo pads, etc.
- Pay-per-click (PPC) advertising
- Social media advertising
- Marketing department salaries
- Email newsletter
- Direct response marketing
- Advertisements on vehicles
- Yellow Page advertising
- Website setup costs
- Special event advertising costs
- Sponsoring local events
- Meals and entertainment costs for special events
Are Business Cards a Marketing or Advertising Expense?
When it comes to filing your taxes, the vast majority of marketing costs, including business cards, are deductible as advertising expenses. Marketing is a broad category of promotional strategies that help your company to generate income. It’s essential to create a detailed marketing plan that works for your target audience. Your marketing is an ongoing and integrated process that helps consumers to notice your business, and turns them into buyers. Marketing involves promotion through press releases, case studies, white papers, websites, blogs, and other techniques.
Advertising, on the other hard, is just one of the many marketing strategies available. With advertising you use fee-based and public promotions that work independently. Advertising is usually one of the most expensive marketing strategies a business has.
What Does This Mean for Taxes?
Advertising and marketing costs are a business expense, so they can be deducted on your tax return. This means that business card expenses are an advertising/marketing expense. The tax form Schedule C: Profit or Loss from Business is the additional form you must use to report business losses, profits and expenses.
Depending on your business entity, you will place you advertising and marketing costs on different sections of the tax returns. For example, if you run a sole proprietorship or a single-member limited liability company (LLC) you place the advertising expenses on Line 8 of Schedule C. Corporations, partnerships and multi-member LLCs have separate business tax returns that are more complicated
Now that you know what constitutes an advertising or marketing expense for your business, you are in a better position to get all the tax deductions that you are entitled to. By knowing the tax code rules, you can possibly reduce the amount of business taxes that you owe the IRS.