Advertising Expenses and How to Claim Them
In the word’s of Don Draper from Mad Men, “There’s no point in being creative if you can’t sell what you create.”
While most of us don’t have Don Draper’s office or impeccable jawline, advertising is a challenging and necessary expense for all business owners. Fortunately, it’s also a tax deduction.
Advertising is a broad category, and some surprising purchases can count. Let’s look at what does and does not count as advertising, and how to claim those write-off on your taxes.
What counts as an advertising expense?
Simply put, advertising is any action aimed at raising awareness about a brand, product, or service.
Sound broad? That’s because it is.
The reality is, advertising does way beyond things like billboards and print ads. A whole host of expenses fall under this umbrella. To give a few examples:
- 🧢 Accessories featuring your brand or logo
- 🪧 Billboards and signs
- 💈 Brochures and business cards
- 🍏 Logo and brand design costs
- 🤝 Networking activities
- 🖥️ Online advertising
- 🗞️ Print advertisements
- 📺 Radio and TV ads
- 🌐 SEO services
- 😎 Social media influencers
- 🎨 Website design
Basically, anything that helps put your brand, service, or product on the map most likely counts as advertising. That makes it fully deductible.
Surprising costs that count as advertising
There are a few kinds of advertising I want to call out specifically, because they aren’t as straightforward as the ones I listed above:
🎉 Promotional events: When throwing a party is a write-off
A tried and true method of generating buzz about your business is hosting promotional events. This could be anything from a launch party to a holiday raffle.
Many people don’t realize this, but the costs incurred during these events — including food and entertainment — are all valid advertising costs. You can write them off completely.
- 🎵The DJ you hired for the customer appreciation party? Write-off.
- 📸 The photobooth you rented for your soft launch? Claim it.
- 🤡 The clown you hired to twirl the sign outside of your event? Deduct it and then never speak of it again.
Interestingly, advertising is one of the only ways to write off the cost of entertainment. After the passage of the Tax Cuts and Jobs Act (TCJA) in 2018, entertainment costs were made nondeductible except in a few specific contexts — promotional expenses being one of them.
😇 Goodwill advertising: When charity is a write-off
It feels good to give back to our communities, but it feels even better to get a write-off out of it.
Next time you consider supporting a charity, see if they’ll feature your business in exchange. Not only will you be able to write off the expense as advertising, but it’s also a good look for your brand.
Here are some examples of how that might work:
- ⚽ You sponsor your niece’s soccer team, and they put your logo on their jerseys or team banner (think Luke Danes from Gilmore Girls)
- 🥣 You donate to a local soup kitchen, and they print your logo on the brochures at their next charity banquet
- 🎗️ You donate to an organization, and they feature your small business on their website
- 🏃You contribute to a local fun run for charity, and they add your brand to their promotion materials
- 🧸 You commit to donate 10% of your sales for the month of December to Toys for Tots
With the increased standard deduction, many people aren’t able to get any tax benefits from their charitable giving. Self-employed individuals, however, can write off their donations on top of the standard deduction as advertising expenses.
Word to the wise: Don’t try to get sneaky with this. You can’t write off your regular tithe money because your business logo was printed in the church bulletin.
Rule of thumb: You must have a reasonable expectation of return.
If you made a $5,000 donation to charity, ask yourself, does that sound like a reasonable price to pay for the amount and quality of advertising you received in return? There must be a profit incentive: you’re a small business owner after all.
Remember, this isn’t a donation, it's a transaction made for business purposes. You need to get something back.
🎁 Client gifts: When freebies are a write-off
Advertising is just as much about keeping current clients as it is about attracting new ones.
That’s why so many businesses have “giveaway items” that they hand out for free or with a purchase — things like pens, hats, or tote bags.
For tax purposes, giving out gifts like these does count as engaging in “promotional activities.” However, claiming these as advertising expenses can get tricky.
Here’s the rub: when gifting free stuff, you’re only allowed to write off $25 per client, and that includes shipping and taxes.
Why only $25? Because that’s the amount that sounded reasonable in 1962 when this rule was first created. If it were adjusted for inflation, it’d be more like $225. Unfortunately, the IRS hasn’t gotten around to updating it.
This rule makes it challenging to find business gifts for your clients. Here’s an example. Let’s say you’re a freelance photographer and want to send holiday gifts to your customers. Maybe you order custom ornaments with the client’s photos.
After shipping and taxes, the whole gift costs $30 per client. If you do this with 20 customers, your total write-off is $500 ($25 x 20), because you can’t claim the entire $30.
Are there any workarounds to this rule? Yes, there are! The $25 limit doesn’t apply, if:
- 🖋️ You’re freely handing out a number of freebies, and each individual item costs less than $4. (These might include pens, lip balm, or golf balls.)
- 👜 The item has your company name or logo clearly and permanently displayed on it (For example, a tote bag with your logo isn’t subject to the $25 limit, but a bottle of wine with a branded label is since the label is removable).
👕 Branded merch
This is a fun trick people don’t talk about enough: customizing items with your business name or logo makes it fair game for an advertising write-off.
You can order clothes like hoodies and T-shirts, baseball caps, tote bags, mugs, and more. They’re all tax deductible if they feature your brand on them.
Advertising expenses are a broad category, which means lots of opportunity for write-offs — but also lots of recordkeeping.
If updating spreadsheets and keeping receipts isn’t your idea of a good time, try the Keeper Tax app. We’ll keep up with your advertising expenses for you, leaving you more time to shop for the perfect branded hoodie.
What doesn’t count as an advertising expense?
Advertising can shift into the gray area very quickly. You can spin almost anything as “marketing.”
I once had a client try to write off his fiancée’s $10,000 engagement ring by claiming it was advertising. For context, he worked as a financial planner. He argued that, when he takes prospective clients out to dinner and they see his fiancée’s expensive ring, they’ll assume he’s successful and trust him with their money.
Don’t buy it? I didn’t, and I doubt the IRS would either.
Here are some other big-ticket items you explicitly can’t deduct:
🇺🇸 Advertisements on a political platform
Much like church and state, politics and taxes have a long and messy history. Consequently, the tax code was written to eliminate any chance of receiving a financial kickback from political activities.
To that end, advertising done on any political platform is not deductible: it’s viewed as an indirect political donation.
Let’s say you really like the new candidate for City Council. To show support, you purchase ad space on their website.
While your civil engagement is commendable, it’s not the best move for you, tax-wise: 0% of your purchase is deductible.
💒 Personal events
“Promotional events” often get misconstrued to mean “any event my customers attend.” Using that logic, taxpayers have tried to write off the costs of private functions, like weddings and birthday parties.
It’s hard to avoid overlap between your work and personal life. Oftentimes, customers are also friends and family. But when it comes to claiming deductions, there need to be clear parameters — especially when meals and entertainment are involved.
Here’s the rule of thumb: if the purpose of the event is not explicitly work-related, don’t try to claim it.
⛳ Client hobbies
Entertainment expenses are generally not deductible after TCJA. However, there is some wiggle room within the context of marketing expenses. But that’s just it: wiggle room, not a hall pass.
Entertainment is allowed for promotional events, not for schmoozing individual customers.
Say you and one of your customers are both avid golfers, and you regularly play together on the weekends. Even if work was discussed, don’t try to claim your golfing expenses as marketing. There’s no way to get around the fact that it’s a personal hobby.
🏎️ Vehicle expenses for car with ads on them
One of the funniest episodes of Modern Family is when the dad, Phil Dunphey, puts a real estate ad on the family SUV, featuring pictures of his wife and daughters. The ad comes out looking like he's selling adult services, and hilarious chaos ensues.
While the cost of placing the ad on the SUV is fair game for tax purposes, Phil’s blunder raises another interesting question. He doesn’t drive the SUV for work, but does putting an ad on it suddenly make the car itself a business expense?
Unfortunately, no. Despite the fact that the SUV is now advertising his real estate company, it’s still just a family SUV, being used solely for personal trips. It’s not driven for work, so he can’t claim his car expenses.
How to claim your advertising expenses
For self-employed individuals, report your advertising expenses on line 8 of your Schedule C. From there, you can add them to your total expenses and use them to reduce your taxable income.
If you’re looking for a shortcut, the Keeper App will automatically track and sort your expenses during the year, including your eligible advertising write-offs. Once you’re ready to file, it’s as easy as uploading your forms.The app will complete the Schedule C for you.
You don’t need to look like Jon Hamm to spot a great product when you see one. Download the Keeper Tax app and never miss another write-off.
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email email@example.com if you have questions.