What expense category is Circulation Costs?

For businesses in the publishing industry, growing and maintaining a reader base is the key to success. The costs associated with this effort—from marketing campaigns to subscriber management—are collectively referred to as circulation costs. While these expenses are fundamental to the business model, they have unique tax implications that distinguish them from other operating expenses.

The IRS offers publishers of newspapers, magazines, and other periodicals special options for treating these costs. This guide explains what qualifies as a circulation cost, the different tax treatments available, and how your business can effectively track these expenditures to maximize compliance and tax benefits.

The Circulation Costs Expense Category

As defined in IRS Publication 535, circulation costs are the expenses paid or incurred to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical.

Even though these costs might otherwise be considered capital expenditures because they build a long-term asset (your subscriber base), a special IRS rule allows publishers to deduct them as a current business expense.

Important Considerations When Classifying Circulation Costs

It is crucial for accountants and business owners to distinguish between deductible business expenses and other costs that must be capitalized.

What Is NOT a Circulation Cost?

According to IRS Publication 535, the special deduction for circulation costs does not apply to the following types of expenditures, which must be capitalized:

• The cost of purchasing land or any depreciable property.
• The cost of acquiring circulation by purchasing any part of another publisher's business. This includes buying another company’s subscriber list.

Circulation Costs vs. Other Business Expenses

Circulation costs are specifically related to building your audience. Other general business expenses, such as office rent or utilities, should be deducted under their own respective categories. The key is that circulation expenses are directly tied to the effort of getting and keeping subscribers and readers.

Examples of Deductible Circulation Costs

IRS Publication 535 provides clear examples of what constitutes a circulation cost. A primary example is the expense of hiring extra employees for a limited time, specifically to solicit new subscriptions through telephone calls or other direct marketing efforts.

Other common examples include:

• Costs for marketing campaigns aimed at increasing subscriptions.
• Salaries or commissions for sales agents who sell subscriptions.
• The cost of printing and mailing subscription offers.
• Expenses related to maintaining a subscriber database.

Tax Implications and Reporting for Circulation Costs

One of the most unique aspects of circulation costs is the flexibility the IRS provides for its tax treatment. Publishers are not locked into one method.

Your Three Options for Tax Treatment

As outlined in IRS Publication 535, a publisher can choose one of three ways to handle their circulation costs:

1. Deduct as a Current Business Expense: You can deduct all eligible circulation costs in the year you pay or incur them. This is the most common approach, which involves claiming the costs on your business tax return (e.g., Schedule C for a sole proprietor).
2. Capitalize the Costs: You can elect to capitalize all circulation costs that are properly chargeable to a capital account.
3. Amortize Over 3 Years: You can elect to amortize your circulation costs ratably (in equal amounts) over a 3-year period, beginning with the tax year in which the expenses were paid or incurred.

How to Make an Election

If you do not want to deduct circulation costs as a current expense and choose to capitalize them instead, you must attach a statement to your tax return for the first year the election applies. 

According to the IRS, this election is binding for that year and all future years unless you receive IRS approval to revoke it. This same process applies if you elect the 3-year amortization option. The election is made on Form 4562, Depreciation and Amortization.

How Fyle Can Automate Tracking for Circulation Expenses

Managing the various costs of a subscription campaign—from marketing agency invoices to freelancer payments—can be complex. Fyle helps you capture and organize every expenditure, providing a clear financial picture and simplifying tax-time decisions.

Track Every Campaign Cost

Fyle allows you to track expenses by "Project," so you can create a project for each subscription drive or marketing campaign. Every related cost, from digital ad spend on a corporate card to an invoice from a print-and-mail house, can be coded to a specific project, providing precise visibility into the ROI of your circulation efforts.

Centralize Invoices and Receipts

All supporting documents can be centralized in Fyle. A marketing agency can email an invoice directly to Fyle, where it is automatically captured and attached to an expense record. This ensures you have the necessary "documentary evidence" required by the IRS for every cost incurred. 

Fyle's integration with accounting software, such as QuickBooks, Sage Intacct, NetSuite, and Xero, then provides your accountant with clean, categorized data, making it easy for them to apply the chosen tax treatment—whether deducting currently, capitalizing, or setting up a 3-year amortization schedule—all without manual data entry.