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As creative and marketing agencies grow, the type and depth of operational expenses increase as well.
What once consisted of a few subscriptions and contractor payments grows into payroll, office space, a larger marketing budget, equipment purchases, and custom software used across the team.
Many of these expenses are legitimate deductions.
But only if you can prove them.
The first step is understanding legitimacy.
The second step is maintaining proper records and receipts to easily support deductions if questions ever arise during an audit.
That’s how the law works.
You make “claims” on your return.
And in the event of an audit, you are expected to prove those claims to the IRS.
For creative and marketing agencies operating with teams, these deductions often represent some of the largest opportunities for legitimate tax savings as the business scales.
When most of your business activities take place from your home, the home office deduction may apply.
This deduction allows you to write off a portion of home expenses such as:
The allowable portion is based on the percentage of your home used exclusively and regularly for business.
Even if you occasionally work elsewhere, the deduction may still apply.
What matters is that the home office serves as the principal place where administrative or management activities for the business occur.
Many agency owners elect S-Corporation status for their LLC for tax purposes.
When you do this, you become an employee of your own company.
And employees cannot claim the traditional home office deduction that’s available to self-employed individuals on their personal return.
Instead, the deduction must be handled through an accountable plan.
Under this structure, the business reimburses the owner(s) for the home office expense and takes the deduction at the entity level.
Without this setup, many S-Corp owners unintentionally miss the deduction entirely.
Marketing is included on this list for one simple reason.
As agencies grow, marketing budgets grow with them.
Paid social campaigns, Google Ads, Meta Ads, or TikTok Ads can quickly become large expenses.
And when the numbers get big, doubt often creeps in.
Owners start wondering whether those amounts are still fully deductible.
They are.
There is no fixed dollar cap on legitimate marketing deductions. If the expense is ordinary and necessary for promoting the business, it is generally deductible.
What matters is the business purpose, not the size of the expense.
Because these amounts can grow quickly, keeping clear invoices and documentation is essential to properly support the deduction.
Creative agencies often invest in equipment used for daily operations.
Cameras, laptops, workstations, lighting, desks, and office furniture are common examples.
Because these items typically provide value for more than one year, they are capital assets.
However, many of these purchases can still be deducted in the year they are placed into service.
This is commonly done through the de minimis safe harbor election, which allows immediate deductions for items costing up to $2,500 per invoice or per line item.
For purchases above that threshold, deductions are typically taken using Section 179.
Section 179 allows the entire cost of equipment to be deducted in the year it is placed into service rather than depreciated over time.
When purchasing equipment, documentation becomes just as important as the purchase itself.
Maintaining clear records of these purchases in your financials, along with the receipts, becomes essential to properly support the deduction.
Especially when claiming deductions under Section 179.
If the IRS ever reviews the return, those records are what support the deduction.
Software expenses such as subscriptions, annual licenses, and cloud-based tools are generally fully deductible.
Creative agencies rely heavily on these systems to manage projects, collaborate internally, and deliver work to clients.
However, the treatment is not always as straightforward when dealing with custom software.
At the stage of a team-structured creative agency, owners may invest in configuring or implementing custom software systems designed specifically for their workflow.
These arrangements can involve different tax treatment depending on the stage of implementation.
Keeping contracts, invoices, and documentation ensures that these expenses (including any capitalized intangible costs) are properly supported and deducted over time.
Custom software arrangements can be divided into three stages.
Each stage has different tax treatment.
Flights, hotels, car rentals, ride-sharing, and other travel costs may be deductible when the primary purpose of the trip is business related.
This may include:
Meals connected to business activities are typically 50% deductible.
This applies whether you are traveling or simply meeting with clients or colleagues locally.
For meals, the IRS expects documentation showing:
Meals by yourself do not qualify.
The documentation is what makes the deduction defensible.
Tax deductions are not free money.
The best way to think about them as a business owner is as purchase discounts the government provides to incentivize productive spending and investment.
The goal is not to spend money simply to reduce taxes.
Buying one thing is cheaper than getting three for the price of two.
The real goal is to spend money on stuff that makes your agency more profitable.
Because at the end of the day, you are still spending money.
If you are ready to partner with a creative agency CPA team, you can schedule a free discovery call today.
Not in the traditional way.
When you operate your agency through an S-Corporation, you become an employee of your own company.
And employees cannot claim the traditional home office deduction that’s available to self-employed individuals on their personal return.
Instead, the deduction is handled through an accountable plan, where the business reimburses the owner for the expense.
No.
A deductible business expense must be (1) ordinary and (2) necessary for operating the business.
Just because you (1) ordinarily use something for business doesn’t mean it is (2) necessary, and that’s where most people get it wrong.
When in doubt, ask yourself:
Would another creative agency reasonably incur this expense to operate their business?
Yes, in many cases.
Businesses can still deduct legitimate operating expenses even if they are not profitable in a given year.
However, if a business consistently operates at a loss over multiple years without a clear profit motive, the IRS may question whether the activity is truly being operated for profit.
In those cases, deductions may be limited or disallowed.
The simplest and most effective step is to keep all business activity inside dedicated business bank accounts.
Avoid mixing personal and business expenses whenever possible.
Clean financial records are the foundation of defending yourself if the IRS ever reviews your return.
Equally important is organizing and storing receipts.
At a minimum, maintain a digital folder organized by year and month so every expense has supporting documentation behind it.
No.
Tax deductions are not determined by how many entities you create.
Many online discussions suggest that forming additional LLCs or trusts automatically creates more deductions.
That is not how the tax rules work.
Deductions are based on legitimate and documented business expenses, not the number of entities involved.
Jose Cardenas, CPA, EA
Jose is a Certified Public Accountant in the state of Florida and an Enrolled Agent, and is the Founder and Managing Member of Westfront Tax & Accounting. He works with creative and marketing agencies with team structures that need more than year-end tax preparation. Through structured monthly accounting and proactive tax planning, he helps agency owners gain clarity over cash flow, margins, and long-term financial strategy. With a background in manufacturing finance, Jose brings a unique operational perspective and the ability to break down labor, pricing, and cost structure, helping agencies operate with stronger financial control as they scale.
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