How to deduct advertising costs on your tax return

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You didn’t start your business to be a nonprofit. You want to use your talents to bring in the income that allows you to live life the way you choose to live it. In order to do this, you have to get some customers. To get them, you need to advertise.

There are a number of ways to get the word out about your business. You put up a website. You splash your business name across a billboard. You buy print and online ads from your local newspaper. You sponsor an event for a local charity. Maybe you even purchase a 30-second TV spot. Then you cross your fingers that these advertising moves will actually bring in some customers.

But did you know that the things you have done to get the word out about your product or service might be deductible on your tax return? Let’s take a look at how to deduct advertising costs on your return.

What kind of costs can you deduct?

You can usually deduct the amount of advertising expenses directly related to the activities you do in your business. To do this, you will have to be able to show that the advertising was for your business. One easy way?

Feature the name of your business prominently in your advertising.

 

Keep in mind that the IRS might question large advertising expenditures. For instance, let’s say you sell duck decoys for $19.99. The IRS may have a few questions if you spend $150,000 in advertising during the running of the highest rated show on TV. Make sure the amount you spent can be supported by invoices and contracts if you did end up paying this amount for advertising.

Advertising vs. lobbying expenses

You might think money you spend to convince your state or national legislators to vote for or against legislation that may help or hurt your business is an advertising expense. It isn’t. These costs are lobbying expenses and are not deductible.

You can deduct advertising costs that meet these criteria

Generally, you can deduct any advertising used to keep your company’s name in the public eye — as long as it relates to business you reasonably expect to gain in the future. This would include advertising to encourage people to donate to a charitable organization that you support. Again, be sure that your company’s name is on the advertisement.

You can deduct for the price of email addresses you purchased for use in an email marketing campaign.

What about those pens and refrigerator magnets with your company’s name on them? Yep. The cost of these items are advertising expenses, and you can deduct them as such.

If you have banner you use at events your business attends or sponsors, you can deduct the cost as advertising.

Of course, as people are spending more time online, you probably will have purchased some online ads. These are deductible as advertising expenses, as is the cost of your website.

The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Image by: MsSaraKelly via Visualhunt / CC BY

Chris Peden
Chris Peden, CPA, CMA, CFM has spent more than 15 years in the corporate world helping companies meet their regulatory compliance requirements. He also assists small business owners with organizing and making sense of their finance information.