When it comes to saving money on your taxes, every little bit helps right? One of the best ways to save money on your taxes is through maximizing and tracking deductions. Since deductions work to lower your taxable income, and therefore can help lower the amount you owe in taxes, you certainly want to be capturing as much as you can in your business.
As a business owner, you are subject to certain ongoing business expenses. These expenses can add up over time. The IRS rules state that expenses must be both ordinary and necessary in the conduct of business, and be documented. Ordinary means that other businesses like yours incur similar kinds of expenses, and necessary means that you deem the expense necessary to make a profit. One example of an ordinary and necessary business expense, are your advertising and marketing expenses.
It’s also important to note that for most businesses, this is a category that the IRS tracks as a percentage of sales. For digital marketing and e-commerce businesses, this can be equal to as much as 50% of sales in high-growth and high-investment businesses. Getting the IRS to understand that is another story, but here are some expenses we believe are easily deductible under the right circumstances.
What Marketing Expenses Are Deductible?
Growing your business may require a versatile promotion plan that incorporates various types of marketing strategies. The marketing deduction is considered a miscellaneous deduction and encompasses a variety of activities. So long as these activities are performed with the intent of bringing in business, they can be considered ordinary and necessary expenses. This includes:
- Running online ads
- Television commercials
- Radio advertising
- Newspaper ads
- Printing and mailing newsletters and postcards
- Designing and printed business cards
- Creating and maintaining a website
- Creating banners and other promotional material
- Social media
- Affiliate marketing
- Influencer marketing
- Content marketing
- Email marketing
In addition to the marketing activities mentioned above, promotional expenses can also be considered as marketing expenses. This means if you choose to sponsor an event with the intent of bringing in new business, it is considered ordinary and necessary and therefore may qualify as a marketing deduction.
Some Things To Keep In Mind
When it comes to marketing and promotion expenses it is important to take into consideration the recent changes to the tax code under the Tax Cuts and Jobs Act. Under the recent changes some expenses are no longer considered promotional expenses that can be deducted. These include, client entertainment. For example, if you plan to purchase tickets to a sporting event or concert, these expenses are no longer considered tax deductible. However, up to 50% of meals associated with business can be deducted. So, if you provide a meal to a client while you discuss business, you are allowed to deduct up to 50% of its cost.
Keeping Track Of Expenses
In order to claim your marketing expenses, you must keep track of them. This is where a good accounting process comes into play. Marketing transactions need to be carefully accounted for and properly categorized. This way at the end of the year, you can run a report that details all of your marketing expenses.
Having the right tools can make this process a lot easier. We recommend using either Quickbooks Pro or Xero to keep track of your bookkeeping. Both are extremely capable and offer many integrations that can help keep track of and categorize expenses while on the go. To learn more about Quickbooks Pro and Xero click here.
Working with a tax advisor can help you identify which expenses are deductible. With the ever changing tax code, knowing what you can and cannot deduct can be a little confusing. Which is why professional guidance is so helpful when it comes to your taxes and saving your money. To learn more about tax deductions and other tax related topics subscribe to our newsletter.