Did you know that tax law allows businesses to deduct expenses that help them bring in new customers and keep existing ones? Any marketing or advertising expenses spent on campaigns to generate or retain customers is eligible for 100% deduction from your total taxable income, if your business pays on a cash accrual basis. And under certain conditions, the IRS allows accelerated deduction of certain prepaid expenses, including expenses for advertising and marketing.
Accelerated deduction of these expenses happens under the "12-month rule," which allows you to deduct a prepaid future expense in the current year. This lowers your current year’s tax obligation by pre-paying for future marketing expenses now.
There are a couple caveats though. First, your business must pay its taxes on a cash accrual basis. Also, there’s a bit of a time limit on when you must use the services or products you prepay for. Any prepaid expenses that are deducted in the current year must be used within the next 12-month period from the time of payment.
As a disclaimer, we are not offering tax or legal advice here. Tax rules can be complex, and there may be exceptions or specific conditions for certain expenses. Consulting with a tax professional or accountant can help ensure that you are applying the rules correctly to your particular business situation.
But if you plan on making an investment in marketing for your business next year, let's talk. The ability to deduct those marketing costs might make the investment in marketing even more appealing.