Issue Number: Tax Tip 2021-159
Small business advertising and marketing costs may be tax deductible
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. Here are some details about this valuable tax deduction that can help small businesses save money on their taxes.
Advertising and marketing costs must be ordinary and necessary to be tax deductible.
- An ordinary expense is one that is common and accepted in the industry.
- A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary.
Here are a few advertising expenses that are usually deductible:
- Reasonable advertising expenses that are directly related to the business activities.
- An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.
- The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.
Generally, small businesses can’t deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate.
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