What Business Advertising Expenses Are Deductible?

We now return to our company example of Printing Plus, Lynn Sanders’ printing service company. We will analyze and record each of the transactions for her business and discuss how this impacts the financial statements. Some of the listed transactions have been ones we have seen throughout this chapter.

  • The IRS considers all costs for starting a new business as capital expenses.
  • If your cost covers only one month of advertising, your expense equals the amount you paid.
  • You will notice that the transaction from January 3 is listed already in this T-account.

You can deduct advertising expenses because they are the same, no matter where your business is located. Let’s assume that in December a corporation paid $15 million to prepare an ad and to book a time for it to be shown during the Super Bowl Game in early February. Until February, the $15 million is the current asset Prepaid Advertising. After the ad is shown in the Super Bowl Game, the corporation must credit Prepaid Advertising and debit Advertising Expense.

What is Advertising Expense?

Liabilities, on the other hand, are the obligations and debts owed to other parties. In a way, expenses are a subset of your liabilities but are used differently to track the financial health of your business. Payments for advertising, equipment repairs, utilities, and rent are liabilities. When an owner withdraws cash from the business, the transaction affects both assets and owner’s equity. A negative amount for net worth would reflect more debt than assets, something a creditor would favor. Checking to make sure the final balance figure is correct; one can review the figures in the debit and credit columns.

Below we dive into the expenses that are considered advertising for business tax purposes, and which expenses are not deductible. Adjusting entries are required at the end of every period to check and update the company’s accounts. Another key element to understanding the general ledger, and the third step in the accounting cycle, is how to calculate balances in ledger accounts.

How to claim your advertising expenses

Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. Sarah has spent nearly a decade in public accounting experience, and has extensive experience offering strategic tax planning at the state and federal level. In her spare time, she is a devoted cat mom and enjoys hiking, painting, and overwatering her houseplants.

Advertising is any communications with a target audience that is designed to persuade that audience to take some type of action, such as buying a product or service. Advertising can also be intended to build awareness of an industry or brand. Examples of advertising are billboards, web site banner ads, radio announcements, and podcast sponsorships, as well as the production costs for any of these items. Advertising expense is the consumed cost of these activities.

The adjusting entry later on would then be to transfer the unused part to “Prepaid Advertising”. Both methods will produce the same effect in the accounting system. In any case, advertising expense should be equal to the used part, while prepaid expense should be equal to the unused portion. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses. It is the amount of money your company owes vendors or creditors for goods and services, making this a liability instead of an asset. Advertising is considered an expense item; part of operating expenses recorded on the income statement.

How to Make Money on Internet Advertising

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. This rule makes it challenging to find business gifts for your clients. Let’s say you’re a freelance photographer and want to send holiday gifts to your customers. 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.


Of the accounts payable, expenses accrued, cash, and notes payable, cash is not a liability account. Unlike an asset, expenses do not maintain their worth for more than a year because the business usually consumes them immediately. Because of this, financial professionals deduct them right away rather than creating a depreciation schedule. Accountants record expenses in the income, or profit and loss, statement. If your ad only runs for one month, you don’t need to calculate your expense for accrual accounting.

The cost of public service or other impartial advertising, such as advertising designed to encourage the public to register to vote, are also deductible. But, no deduction may be claimed for the expense of advertising in political programs, or for admission to political fund-raising or inaugural functions and similar events. This includes admission to a dinner or program if any part of the proceeds of the event directly or indirectly inures to or for the use of a political party or a political candidate. This cost is probably the most misunderstood of any advertising expense. The IRS specifically discusses this subject because it’s misunderstood.

The reflects that a month’s worth of advertising has been expensed and is no longer prepaid. If you purchased the advertising outright, then this particular transaction is all that needs to be recorded. Sometimes, companies what is budgetary control pay for advertisements in advance to media companies. These advanced payments are treated as assets (prepaid advertising) and only become part of expense once the advertising services have been performed.

By narrowing your focus, you can avoid wasting money on ads that don’t reach your target market. You can also save money by creating high-quality content that will engage and convert your audience. Finally, using cost-effective advertising methods can help you get the most bang for your buck. The U.S. Small Business Administration notes that many businesses set their marketing budget as a percent of revenue. Business to consumer (B2C) companies generally spend more than business to business (B2B) and service companies spend more than product companies. Of course, if the operation gives a customer packaged food or beverages that are to be used later, they are considered gifts.

You can see that a journal has columns labeled debit and credit. The debit is on the left side, and the credit is on the right. Sarah is an Enrolled Agent with the IRS and a former staff writer at Keeper. In 2022, she was named one of CPA Practice Advisor’s 20 Under 40 Top Influencers in the field of accounting.

Understanding who buys gift cards, why, and when can be important in business planning. When the supplier completes the advertising service and issues an invoice to us, we need to record the advertising expense and the accounts payable. The expense is recorded when the supplier performs the service.

The next transaction figure of $300 is added on the credit side. This is where you’re incurring a cost to distribute some kind of mail piece, and you expect a certain number of responses back. In this case, you can record the cost as an asset, but only IF you can prove there’s a relationship between the costs incurred and future benefits from the mailing. Mind you, you have to prove the relationship, which means using historical results for the same product or similar products. If you can’t prove that the mailing is going to generate revenue, then you have to charge the cost to expense right away.

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