What expense category is Klaviyo Expenses?

For e-commerce businesses looking to build strong customer relationships and drive revenue, a powerful marketing automation platform is essential. Klaviyo is a leading tool that enables businesses to create and manage sophisticated email and SMS marketing campaigns. For accountants and SMB owners, the costs associated with Klaviyo are a key part of the marketing budget, and categorizing them correctly is vital for calculating customer acquisition costs, measuring campaign ROI, and ensuring tax compliance.

This article will guide you through the proper expense categories for Klaviyo, key considerations for classification, common examples of its costs, their tax implications, and how Fyle can automate the tracking of these marketing technology expenses.

Klaviyo Expense Category

Klaviyo is a Software as a Service (SaaS) platform designed for marketing. Its costs are a recurring operating expense. In your accounting system, Klaviyo expenses are most accurately classified under one of the following categories:

• Marketing Expenses or Advertising Expenses: This is the most logical and direct category. The entire purpose of Klaviyo is to facilitate marketing and advertising communications to customers. IRS Publication 334 confirms that advertising costs incurred to promote your business are generally deductible.
• Software Subscriptions: As a SaaS platform, classifying Klaviyo under "Software Subscriptions" is also highly accurate. Many businesses group all their cloud-based software tools in this account for easy tracking of technology spend.
• Communication Expenses: Because the service involves sending email and SMS communications, it could be grouped with other communication costs, but this is less common than classifying it as a marketing or software expense.

The best practice is to categorize Klaviyo under Marketing Expenses or a specific sub-category like "Marketing Software" to provide the clearest insight into your promotional spending.

Important Considerations While Classifying Klaviyo Expenses

Operating Expense vs. Capital Asset

It is essential to understand that paying for Klaviyo is a subscription for a service, which is an operating expense. You are not purchasing a software asset that would need to be capitalized and depreciated. As noted in IRS Publication 946, only certain types of purchased or internally developed software are treated as depreciable or amortizable assets. A standard SaaS subscription does not fall into this category.

Business Purpose

The expense must be "ordinary and necessary" for your trade or business to be deductible. Using a platform like Klaviyo for email and SMS marketing is a common and necessary practice for modern e-commerce and digital businesses.

Usage-Based Billing

Klaviyo's pricing is often tied to the number of contacts and the volume of emails or SMS messages sent. This means costs can fluctuate monthly, making diligent tracking essential for budgeting and financial forecasting.

Prepaid Plans

If you prepay for an annual Klaviyo plan or purchase SMS credits in bulk, this creates a prepaid expense. According to IRS Publication 334, you generally deduct the expense in the year to which it applies. However, cash-basis taxpayers may be able to deduct the full amount in the year of payment under the "12-month rule" if the benefit does not last longer than 12 months or the end of the next tax year.

Examples of Klaviyo Expenses

Your business's expenses from using the Klaviyo platform might include:

• Monthly subscription fees based on the number of email contacts.
• Usage-based fees for sending SMS and MMS messages.
• Fees for any add-on features, such as advanced analytics or dedicated support.
• One-time fees for any professional services, such as managed onboarding or strategic consulting.

Tax Implications of Klaviyo Expenses

Deductibility

The cost of using Klaviyo for your business's marketing and communication efforts is fully tax-deductible as an ordinary and necessary business expense.

Reporting on Tax Forms

For a sole proprietor filing Schedule C (Form 1040), Klaviyo expenses should be reported on Line 8, "Advertising." This is the most direct and appropriate line item for marketing software.

Recordkeeping

You must keep all supporting documents to substantiate your deductions. For Klaviyo, this includes all invoices and billing statements that detail the services provided and proof of payment from your credit card or bank statements.

How Fyle Can Automate Expense Tracking for Klaviyo

Manually managing and coding recurring and variable software expenses can be a significant drain on your finance team's time. Fyle’s expense management platform automates this process to ensure accuracy and efficiency.

• Real-time Expense Capture: Fyle’s real-time feeds from major company credit card networks instantly capture your recurring or usage-based payments to Klaviyo, ensuring every charge is recorded as it happens.
• Automated Receipt Management: Fyle can automatically fetch e-receipts and invoices for your Klaviyo subscription directly from your Gmail or Outlook inbox, ensuring proof of purchase is always attached to the transaction without any manual effort.
• Smart Categorization: You can create rules in Fyle to automatically categorize any expense from "Klaviyo" as "Marketing Expenses" or "Software Subscriptions" and map it to the correct GL code.
• Campaign and Project Tracking: Use Fyle’s project features to allocate Klaviyo costs to specific marketing campaigns, product launches, or business units. This provides granular data for precise ROI analysis and better budget management.
• Seamless Accounting Integration: Fyle offers direct, two-way integrations with leading accounting platforms like QuickBooks, Xero, NetSuite, and Sage Intacct. This ensures all categorized and documented Klaviyo expenses are accurately synced to your general ledger, streamlining reconciliation.

By using Fyle to track your Klaviyo expenses, you can ensure every dollar of your marketing spend is accurately captured, documented, and ready for insightful financial analysis and compliant tax reporting.