All small business owners know the value of good advertising and promotion. It’s often vital for business growth and success because advertising can increase brand awareness and name recognition. It’s also no secret that those costs can add up quickly.
Luckily, you can deduct promotional expenses on your small business tax return to offset the high cost. An advertising write off can lower your tax liability. The key is knowing what’s deductible and what isn’t, as well as making sure you record all expenses clearly in your accounting books.
Advertising costs are categorized as miscellaneous expenses, but they must be reasonable. Similarly, you can deduct promotional costs if they relate to your company and you expect to gain business as a result of the expense.
Here are a few examples of advertising and promotional expenses that can be written off:
- Placing ads through print media, TV and radio
- Email marketing, social media promotion and digital advertising
- Creating and printing business cards and flyers
- Sponsoring a promotional event or publicity campaign
- Purchasing branded items for promotional purposes, such as pens, shirts and mugs
Although the terms “advertising” and “promotion” can be loosely interpreted, don’t make the mistake of thinking that anything with a hint of promotional value will be deductible.
For example, if you take a potential client for a nice dinner, that cost will not count as a deductible expense because the cost was primarily personal.
One of the most misunderstood advertising costs is the act of placing a business advertisement on your car. While the cost of the promotional material itself will be deductible, having a business logo on your personal vehicle does not mean you can deduct the cost of driving around town as a business expense.
Small businesses are also prohibited from deducting any expenses directly or indirectly related to political campaigns. Even advertising on the website of a political candidate or party will disqualify that promotional cost from being a deductible expense.
Tracking Your Advertising and Promotional Expenses
By tracking the money you spend on advertising and promotion, you can simultaneously ensure compliance with both your budget and the IRS. If you’re sloppy with your paperwork, you risk the inability to claim deductibles. This is why it’s so important to maintain clear entries in a ledger and appropriately file invoices, debits and credits.
When you spend your promotional budget wisely and keep track of your expenses, you’ll be in great shape when tax season rolls around. If you need help organizing your accounts, be sure to consult a qualified professional.