In some circumstances, you may be able to deduct some of your company’s marketing expenses on your taxes, depending on how you classify certain business expenses or what you qualify as marketing. The IRS does have limits on what it allows you to deduct in the areas of sales and marketing, so it’s important to understand these rules as you go through the process of preparing your company’s taxes.
Marketing is generally categorized as activities such as advertising, public relations, promotions and sales. These activities include tasks such as market research, distribution, product planning and the creation of any types of campaigns encouraging people to purchase a product or service.
What is and isn’t deductible?
The biggest question you’re likely to have with regard to marketing deductions is what can and cannot be deducted.
The expenses you should generally be able to deduct include the salaries and wages paid to all marketing contractors and staff, and the costs of creating advertising campaigns, sales promotions, public relations efforts, product samples, direct mail campaigns, websites, surveys and sales promotions.
There are some expenses that are frequently categorized as marketing expenses that cannot be deducted. For example, entertaining a potential customer at a restaurant or giving gifts to prospects or clients might encourage them to make purchase decisions, but these are not likely to be deductible expenses (at least not fully). The new Tax Cuts and Jobs Act significantly cut down on deductions for these entertaining expenses as it is, but even in the previous rules, these would not have been expenses that could be deducted to the same extent as the above listed marketing-related costs.
What about discounts?
Companies often run promotions that give customers discounts on products or services. While this can be a good marketing practice to bring in more sales and new customers, you are not able to deduct the amount of the price reduction or the loss of income from that discount as an expense on your taxes.
So let’s say, for example, you have a product that typically sells for $100 but you have a 20 percent discount on that product for a limited time. You’re not able to claim those 20 percent losses as a deduction. Attempting to do so will likely catch the attention of the IRS and could trigger a potential audit of your company.
Have additional questions about what is and isn’t deductible with regard to your company’s marketing expenses and other operational expenses? Contact a team of skilled tax preparation professionals at Patin and Associates with your questions and we will be happy to provide you with additional information.