Marketing is not a cost. Repeat: marketing is not a cost. It’s a business expense that is tax-deductible, and it’s tax-deductible because deductions, in part, are created to reduce the cost of necessary and profitable business activities.
I often hear business owners say that marketing isn’t that important — that it’s an ancillary spend, and money could be better spent elsewhere. But that’s not the case.
Here’s how marketing helps your business:
- Increased visibility
- Improved customer relations
- Sale generation
- Competitive advantage
- Tax benefits
The last one, tax benefits, is what I’m going to focus on today. Part of that is because it’s an area of expertise for me — I’m a CPA.
The IRS allows small businesses to deduct marketing costs
Considering it’s not very well known, the IRS is pretty explicit about marketing deductions. Here’s what they say on their website:
“The tax law allows businesses to deduct expenses that help them bring in new customers and keep existing ones. These costs may include expenses for advertising and marketing.”
Allowable deductions include:
- Advertising expenses directly related to business activities
- The cost of institutional or goodwill advertising to keep the business front of mind for the public. (The IRS gives the example of advertising that encourages people to contribute to a charity.)
- The cost of providing meals or entertainment to advertise or promote goodwill in the community.
The IRS is fairly generous about what constitutes a deductible expense. That’s why I encourage my clients to deduct every cost they are legally allowed to.
The deduction does have limitations
You can’t deduct costs for advertising that you’ve made to influence legislation. That means no advertising at a political convention or in any publication if the proceeds go to a political candidate.
Otherwise, you’re free to market wherever you’d like.
Ad costs are deducted from gross income
The deduction works like this: Your business subtracts the advertising costs from your gross income before calculating your taxable income — leading to a reduction in your total tax liability.
The form you use depends on your structure:
- Sole proprietorships and single-member LLCs: Schedule C (Line 8)
- Partnerships and multi-member LLCs: Form 1065 (Line 20)
- C corporations: Form 1120 (Line 22)
- S corporations: Form 1120S (Line 16)
R&D offers another opportunity for tax savings
Marketing is important for your business, which is why it’s crucial to look for ways to improve your marketing methods. Fortunately, research and development (R&D) tax credits offer a way to hone your marketing while saving tax dollars.
R&D tax credits provide dollar-for-dollar cash savings for activities related to the development, design, or improvement of products, processes, or software.
Marketing research qualifies for a tax credit
If your research attempts to understand consumer preferences and trends, it can qualify for an R&D tax credit.
The tax credit allows you to save money for
- Development of custom marketing software
- Ad campaign optimization
- Algorithms to improve digital advertising
You might be surprised by what counts for an R&D tax credit. You might already qualify and not be aware of it. Take a look.
I can help you save money on marketing
I’m a Fort Worth-based CPA who can help your business maximize your marketing while minimizing your tax bill.
If you’ve got questions about advertising tax deductions, or how to use R&D tax credits to improve your business, schedule a discovery call today.
Jeremy A. Johnson, CPA