Tax deductions are a great way for online businesses to lower their tax bill. They help offset the amount a business has to pay by taking into consideration the costs of doing business. There are many tax deductions available to online sellers and digital marketers, and one of the largest categories of these deductions are marketing and advertising expenses. Here is a breakdown of top deductions for businesses and how you can can use marketing and advertising expenses as a tax deduction.
10 Common Business Deductions
First things first, let’s recap on some common business tax deductions your business could be missing out on:
- Vehicle expenses – Vehicle operating costs qualify as a tax deduction if you rely on your vehicle to conduct business. These can include trips to business meetings as well as trips to pick up supplies, products,or
materials used in the conduct of your business.
- Rent – The cost of renting out a space for your business can be deducted. Even if you operate your business out of your home. Of course, only a portion of your home can be deducted, and there must be a designated space exclusively used for business purposes.
- Utilities – The utilities you pay for as the result of doing business also qualify for a tax deduction. This also applies to home office expenses. Again only a portion can be deducted if they are shared expenses.
- Supplies – Office supplies, cleaning supplies, shipping supplies, and postage may all be deducted. This is a good general category for your tax return and a good place for Target trips and Amazon purchases since they appear as “catch all” categories.
- Depreciation – Equipment you purchase for your business may depreciate in value. This can be taken into consideration when it comes to determining which tax deductions your business qualifies for.
- Insurance – The costs associated with your business insurance such as workers comp is tax deductible.
- Travel – Travel expenses that are directly related to your business are tax deductible. This includes the costs of attending a business conference; airfare, rental car, hotel, registration fees, etc…
- Salaries – If you have employees, the cost of their salaries may be tax deductible.
- Professional fees – If you hire a professional to for example design your website, their fee may be tax deductible.
- Marketing and Advertising – Many marketing and advertising costs are tax deductible.
These are just a few of the most common tax deductions. Be careful not to have any one of these categories too lopsided versus revenue. You’ll also want your expense-to-revenue ratio to be comparable to the rest of your industry. Working with a tax professional is the best way to know which tax deductions to take and how to properly categorize your transactions to lower audit risk.
Yes, Marketing & Advertising Expenses Are Tax Deductible
As stated above, yes, marketing and advertising expenses are tax deductible. Marketing and advertising expenses can encompass a lot of different areas. From ad placement on TV, radio, or the newspaper, to direct mail expenses. From public relations expenses to the costs or running a promotional event. From the costs associated with printing business cards and flyers, to online marketing like SEO and email campaigns. For businesses that rely on photo shoots or other visual content, those ancillary expenses, such as clothes and other materials used can be deducted as advertising spend.
Even if you go to Barney’s for a coat, if it’s properly used for business, this can be a business expense so long as the expense aligns with how you do market. For example: we throw an annual casino night for all our clients, and because it is central to how we connect thought leaders and promote our tax strategies, we categorize the whole event as a business expense and split it between training and advertising costs. All of these expenses are associated with growing business, and therefore qualify as tax deductions.
There are a few other considerations when it comes to marketing and advertising expenses. You cannot deduct expenses that are primarily personal, even if a small aspect relates to business. For example: if you invite some customers to your daughters birthday party, it is considered a personal event therefore you cannot deduct the cost of the party as a tax deduction. In addition, it is important to consider the difference between marketing expenses and selling expenses. For example: if you maintain a website because you have an online store, the cost would be associated with selling not marketing. Both expenses are deductible however they need to be classified accordingly.
Plan Your Marketing and Advertising To Get The Best Deductions
Since many marketing and advertising expenses are considered tax deductible, you have the ability to grow your business while reducing your tax bill. A good marketing plan involves a good marketing budget, one that is realistic to your businesses needs. Working with an adviser who knows your business can help you know which marketing expenses are tax deductible and reasonable from a budget forecast perspective. To learn more about how we work with online businesses be sure to subscribe to our newsletter here.