Most advertising expenses are tax deductible for businesses but there are some advertising expenses that cannot be deducted. Below are different types of advertising expenses and their tax treatment.
Ordinary Advertising Expenses
What advertising expenses are tax deductible?
Advertising expenses that are ordinary and necessary are tax deductible. Tax deductible advertising expenses must be related to your business and must be of reasonable amount. The IRS, however, does not specify how much reasonable amount is.
Examples of tax deductible advertising expenses
the cost of business cards
the cost of ads in print or the media such as newspaper, magazines, charitable publications, radio, TV, online
the cost of placing ads in the telephone directories
website costs (Internet access fees as well as webmaster fees), especially if they are used for advertising not e-commerce
package design costs that are part of an advertising campaign
billboards rental fees
signs with a useful life of 1 year or less (longer lasting signs can be depreciated)
Deducting Goodwill Promotion
Expenses incurred to create goodwill, rather than for sales are tax deductible. For example, if you sign up for a year's advertising space for your business, the cost of that advertising is tax deductible immediately even though you have the whole year to benefit from it. However, some advertising expenses that produce long lasting goodwill promotion can be challenged by the IRS in an IRS audit if you try to claim all the advertising expenses upfront.
Home improvement costs as advertising costs deduction
Even a home improvement cost can be classified as an advertising expense and is tax deductible if that cost is designed to promote the name of the business and is benefited by the business alone, not personal.
Other examples of potentially tax deductible advertising expenses
- graphic designs
- home improvement for advertising purposes only
- web related expenses
- sponsoring teams
- prizes, contests, promotional activities (business related)
What you have to keep in mind is that in order for advertising expenses to be tax deductible, the expenses have to be primarily to promote the business name. You can still deduct the advertising expenses even if you also have personal benefits if you can prove that the business benefits more.