Below we dive into the expenses that are considered advertising for business tax purposes, and which expenses are not deductible.
What’s Considered Advertising?
Advertising is a broad category of business expenses that includes business activities such as:
Advertising in newspapers and magazines, and on TV or onlineDirect marketingSponsorship of sports teams and creating promotional items like mugs, hats, T-shirts, or pensEmail newsletters, pay-per-click advertising, and SEO servicesAdvertising materials like business cards, brochures, and web pagesAdvertising events such as a publicity campaign or special promotional event
Tax-Deductible Advertising Expenses
You may deduct expenses for advertising your business to customers. It’s important to note that these must be ordinary and reasonable expenses for your business, but not personal expenses. Some examples would be the printing of business cards, running newspaper, TV, and radio advertisements (including production costs), and the costs for setting up and operating your business website.
Promotional Activities
You can deduct the cost of providing meals, entertainment, or recreation facilities to the general public as advertising or promotional activities. The cost for meals isn’t subject to the usual 50% limit for these costs for other business purposes. For example, if you have a grand opening event for your local community that includes passed appetizers and a DJ, the IRS considers this advertising, and you can deduct the full cost of the event, including food and entertainment. The Internal Revenue Service (IRS) says your business can also deduct the cost of goodwill advertising to keep your name in front of the public. For example, a company selling beer that promotes responsible driving in an ad on Facebook would probably be deductible. Temporary signs are considered advertising, but permanent signs (that last more than a year) are not advertising and may be considered tangible personal property and may be depreciated.
Startup Costs
The IRS considers all costs for starting a new business as capital expenses. That means they are like an investment that you expense over time. All startup costs are lumped together when figuring tax deductions. You may deduct up to $5,000 of startup costs, including advertising, in your first year of business. The rest must be depreciated over time.
Expenses That Are Not Deduct
You may not deduct costs that are primarily personal, even though they may have some promotional value. For example, if your daughter is getting married and you invite some of your best customers to the wedding, you can’t deduct the wedding costs associated with those customers.
Political or Personal
You can’t deduct the cost of advertising in any publication or website used by or for a political party or candidate. Political expenses of any kind are not deductible for businesses. You may not deduct the costs of personal hobbies carried on with business associates. For example, if you and a customer like to go to NASCAR events, you can’t deduct these costs as “advertising.”
Ads on Vehicles
This cost is probably the most misunderstood of any advertising expense. You can deduct the cost of printing out an advertisement for your business that you will put on your car (business or personal), but you can’t deduct the cost of driving your car as an advertising expense. The IRS specifically discusses this subject because it’s misunderstood. “Putting display material that advertises your business on your car does not change the use of your car from personal use to business use,” the IRS states on its website. “If you use this car for commuting or other personal uses, you still can’t deduct your expenses for those uses.”
Advertising Expenses on Business Tax Returns
For sole proprietorships and single-member LLCs, advertising expenses are recorded in Part II- Expenses of Schedule C. For partnerships and multiple-member LLCs, advertising expenses are recorded on the line for “Other Deductions” of Form 1065: Partnership Income Tax Return. For corporations filing a corporate tax return on Form 1120, advertising expenses are recorded in the Deductions section. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
