What expense category is Public Relations (PR) Agency Fees?

Managing your company's public image and communication is a critical business function. Many businesses hire public relations (PR) agencies to handle media outreach, brand messaging, and reputation management. The fees paid for these professional services are a normal and necessary business expense.

For accountants and business owners, it's essential to know that these fees are generally a deductible business expense. This guide will clarify how to categorize PR agency fees in accordance with IRS rules, outline the key distinctions to make, and provide guidance on tracking these costs for accurate tax compliance.

Public Relations (PR) Agency Fees Category

The fees you pay to a public relations agency are an ordinary and necessary business expense. While the IRS does not provide a specific line item for Public Relations, these costs are best classified under one of two general categories:

1. Advertising: IRS Publication 535 allows for the deduction of goodwill advertising to maintain your name in the public eye. Since the primary purpose of PR is to manage your company's public image and generate favorable media coverage, it aligns closely with the advertising category.
2. Legal and Professional Fees: A PR agency provides professional, consultative services. As such, their fees can also be categorized with other professional services, as allowed by IRS Publication 334.

Important Considerations While Classifying PR Agency Fees

The most critical factor in deducting PR fees is ensuring that the services do not cross into non-deductible areas, such as lobbying or entertainment.

PR vs. Non-Deductible Lobbying

This is a crucial distinction. Publication 535 explicitly states that you cannot deduct expenses paid to influence legislation or the general public about legislative matters or political campaigns. If your PR firm's activities include lobbying, that portion of their fee is not deductible and must be segregated from your deductible PR costs.

PR Events and Entertainment Rules

If your PR agency organizes a media event or product launch, the costs must be unbundled.

• Entertainment: According to IRS Publication 463, costs for activities considered entertainment (e.g., hiring a band for a press event) are not deductible.
• Meals: The cost of food and beverages provided at the event is subject to the 50% deduction limit.

You must obtain a detailed invoice from your PR agency that separates these costs from their deductible service fees.

Tax Implications and Recordkeeping

To deduct your PR agency fees, you must report them correctly and maintain thorough documentation.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040):

• If categorized as advertising, the fees are reported on Part II, Line 8, Advertising.
• If categorized as a professional service, they are reported on Line 17, Legal and professional services.

What Records to Keep

You must have documentary evidence to substantiate your PR expenses. Your records should include:

• The signed contract or service agreement with the PR agency.
• Monthly or project-based invoices that detail the services performed.
• Proof of payment, such as canceled checks or credit card statements.

How Fyle Can Automate Tracking for PR Agency Fees

Fyle helps you manage and document payments to PR agencies, ensuring every invoice is captured, coded, and ready for tax time.

• Centralize Invoices: Have your PR agency email invoices so they can be sent to Fyle for automatic and accurate data capture.
• Track by Campaign: Code PR fees to a specific campaign or project for precise ROI analysis and cost tracking.
• Create a Clear Audit Trail: Fyle consolidates the agency contract, invoices, and proof of payment into a single, easily accessible digital record.
• Automate Your Accounting: Sync the categorized advertising or professional fee directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.