Question about deducting Facebook/Google ads as an agency

[evgeney]

As of recently I have found myself running a digital agency and I have a question about classifying ad spend as an expense and deducting my liability.

For example, A client send me 3k a month to cover advertising costs which includes the ad spend as well as our agency fee in one transaction. We spend 2k on ads and keep 1k as our management fee, as far as the IRS is concerned, can we claim the ad spend as an expense the 1k as our actual profit?

Thank you!

 

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[softwareRules]

I can only speak about what I know for Canada; Facebook/Google ads are not deductible (at least not for small business/partnership/sole proprietorship) because they are not Canadian news outlets.

I'm not sure how it works in the US, but I would assume that advertising is not quite part of operating expenses. If there's management fees, those could be considered expenses.

The safest answer is to talk to the IRS directly and ask them what can and cannot be deducted as an expense. I've done that a lot in Canada with the CRA (Canada Revenue Agency) because it's better to know today than to find out in a few months or the next year.

 

[Guest12120]

I’m not a CPA.
I would deduct $2k ad spend but also report a full $3k as an income.

 

[GIlman]

If you are doing double entry accounting correctly, you will take in the $3000 as revenue from the client in the form of a sale entry and then will have the cost of ad spend to google as an expense. Your net after expenses will show $1000 for this one transaction.

What are you using for your accounting system. Learning good accounting and using some good software will be a huge asset to you in your life. If you are Mac based I really like Easy Books because there are both Mac and iOS clients, and I find it hugely helpful to have full synced access to my books on every device that I own.

A lot of people like quickbooks, because it dumbs down things a lot. But for what little effort it really is to learn good double accounting, it will serve you well to take what little time it takes to learn it and use it right. Also if you ever want to sell your business, keeping tight and clean books from the start makes all the difference.

 

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[1step]

To add on to what is mentioned above you should have your client pay the $2k in fees directly to the ad platform.

For instance client will setup their own Facebook ads account and add their own credit card for billing then you just manage the account for them and collect $1k a month.

The client should have their own account because they should own all the data and control it all even if they choose to no longer use you.

 

[Andy Black]

To add on to what is mentioned above you should have your client pay the $2k in fees directly to the ad platform.

For instance client will setup their own Facebook ads account and add their own credit card for billing then you just manage the account for them and collect $1k a month.

The client should have their own account because they should own all the data and control it all even if they choose to no longer use you.

These aren’t hard and fast rules.

If a business signs up to Booking dot com or the yellow pages and spends money with them then they aren’t paying Google or Facebook direct and they don’t have access never mind ownership of the Google or Facebook accounts.

I’ve some clients who own the Google Ads account, and some who don’t.

Most of my clients pay the ad spend direct to Google, some don’t.

 

[MattR82]

These aren’t hard and fast rules.

If a business signs up to Booking dot com or the yellow pages and spends money with them then they aren’t paying Google or Facebook direct and they don’t have access never mind ownership of the Google or Facebook accounts.

I’ve some clients who own the Google Ads account, and some who don’t.

Most of my clients pay the ad spend direct to Google, some don’t.

What's your preference Andy? It seems to be a bit of a touchy topic in some fb ad groups I saw posts regarding recently.

Personally I'm of the opinion the client should pay directly and keep the data etc.

 

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[evgeney]

What's your preference Andy? It seems to be a bit of a touchy topic in some fb ad groups I saw posts regarding recently.

Personally I'm of the opinion the client should pay directly and keep the data etc.

We choose not to have the client have access to the ad account however should they choose to move with another agency or manage the ads themselves then they are able to request us to transfer the account to them. Further, should they go in business with someone who is malicious, they are able to request the account to be transferred to them from Google for example by proving ownership.

Regardless, this question is specifically for the scenario where we receive the money and ad spend from the client in one transaction.

 

[evgeney]

These aren’t hard and fast rules.

If a business signs up to Booking dot com or the yellow pages and spends money with them then they aren’t paying Google or Facebook direct and they don’t have access never mind ownership of the Google or Facebook accounts.

I’ve some clients who own the Google Ads account, and some who don’t.

Most of my clients pay the ad spend direct to Google, some don’t.

Can you share your experience how you manage the books with clients who pay you directly?

 

[evgeney]

If you are doing double entry accounting correctly, you will take in the $3000 as revenue from the client in the form of a sale entry and then will have the cost of ad spend to google as an expense. Your net after expenses will show $1000 for this one transaction.

What are you using for your accounting system. Learning good accounting and using some good software will be a huge asset to you in your life. If you are Mac based I really like Easy Books because there are both Mac and iOS clients, and I find it hugely helpful to have full synced access to my books on every device that I own.

A lot of people like quickbooks, because it dumbs down things a lot. But for what little effort it really is to learn good double accounting, it will serve you well to take what little time it takes to learn it and use it right. Also if you ever want to sell your business, keeping tight and clean books from the start makes all the difference.

Thank you Gilman, this is good advice.

 

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[1step]

I’ve some clients who own the Google Ads account, and some who don’t.

Most of my clients pay the ad spend direct to Google, some don’t.

Sure not every business owner is going to want to own their account especially for some brick and mortar clients.

For you on a small account spending $2,000 a month it’s probably not a big deal to pay their ad spend. I guess the logistics of this plan gets a bit more hairy when the client is spending $1,000 or $2,000 a day.

Anyway to each their own, was trying to help out op and make it simpler for him but he appears only interested in basic bookkeeping at this time.

 

[GoodluckChuck]

Some credit cards offer 3x points for Google ads. If you aren't losing out on fees somewhere else in the process then racking up lots of airline miles might be fun to do.