Is advertising an operating expense?
Advertising is considered an operating expense because it represents a recurring cost necessary to promote your business, attract customers, and generate sales. It’s part of the day-to-day activities that help maintain revenue, even though it’s not directly tied to production.
What are advertising expenses?
Advertising expenses include the costs of promoting your products or services through various media channels. These can range from digital campaigns and print ads to sponsorships and brand design. Because advertising supports ongoing operations and revenue generation, it’s categorized as an operating expense on the income statement.
How to categorize advertising expenses
- Record as Operating Expenses in your income statement.
- Use a “Marketing and Advertising” or “Promotions” account in your chart of accounts.
- Include campaign design, media placement, and digital ad costs in this category.
- Exclude costs tied to product packaging or direct production — those belong under Cost of Goods Sold (COGS).
- Track recurring campaigns and one-time projects separately for budgeting accuracy.
Examples of advertising expenses
- Online advertising (Google Ads, social media ads, display ads).
- Print, radio, and television advertising.
- Influencer partnerships and sponsored content.
- Billboards, signage, or outdoor advertising.
- Promotional materials such as brochures or branded merchandise.
- Event sponsorships or trade show participation.
- Content creation, photography, and design services for campaigns.
Tax implications for advertising expenses
- Advertising and promotional costs are fully tax-deductible as ordinary and necessary business expenses.
- Deductions apply only to advertising intended to generate business income, not for personal or political purposes.
- Long-term brand assets (like trademarks or logos) may need to be capitalized instead of expensed.
- Keep invoices, contracts, and receipts detailing the nature and purpose of each campaign.
- Online advertising services paid to foreign companies may require additional IRS reporting for compliance.
