What expense category is MailChimp?

Note on IRS Publications: Costs for using services like Mailchimp for business purposes are generally covered under the rules for ordinary and necessary business expenses in IRS Publication 334 (Tax Guide for Small Business, 2024) and Publication 535 (Business Expenses, 2022). If the primary use is promotional, the rules for Advertising expenses apply. Rules for prepaid expenses (Pub 535) may apply to multi-year contracts.

Mailchimp and similar platforms provide tools for email marketing, automation, newsletters, and customer communication. Fees associated with these services are common business expenditures.

How the IRS Views Mailchimp Expenses

The IRS generally considers costs for using services like Mailchimp for legitimate business purposes to be deductible ordinary and necessary business expenses. Because these are typically subscription-based services, the fees are usually deducted in the year paid or incurred. The most appropriate specific tax category is often Advertising Expense, given the common use of these platforms for marketing and customer outreach. If used purely for non-promotional operational communication, "Other Business Expenses" might apply. Significant prepayments covering multiple years may need to be deducted over the subscription term rather than all at once.

Relevant IRS Publications:

• Publication 334 (Tax Guide for Small Business, 2024): Covers general rules for deducting ordinary and necessary business expenses, including Advertising.
• Publication 535 (Business Expenses, 2022): Discusses deductible Advertising expenses and rules for Prepaid Expenses.

What Expense Category Should Mailchimp Costs Fall Under?

For Internal Accounting: You might use categories like:

1. Email Marketing Software
2. Marketing Expenses
3. Software as a Service (SaaS)
4. Advertising & Promotion

For Tax Purposes (IRS Classification):

1. Advertising Expense: If used primarily for marketing, newsletters, promotions.
2. Other Business Expense: If used primarily for non-promotional operational communications.

Mailchimp Expense Use Cases and Tax Categorization (IRS Treatment)

1. Monthly/annual plan fee for sending marketing emails and newsletters: Deductible Advertising Expense.
2. Pay-as-you-go credits for sending email campaigns: Deductible Advertising Expense.
3. Using Mailchimp primarily for internal employee communications (less common): Potentially deductible as Other Business Expense.
4. Prepaying for a 2-year Mailchimp plan: Deduct the cost ratably over the 2-year period.

Categories to Avoid While Categorizing MailChimp Expenses for Tax Purposes

1. Capitalizing Standard Monthly/Annual Subscription Fees: These are operating expenses, not capital assets.‍
2. Deducting Multi-Year Prepayments Entirely Upfront: Expenses creating a benefit substantially beyond the current year generally must be deducted over the period benefited. While others correctly flag this potential capitalization, the mechanism is deducting the expense over the subscription term, not depreciation.‍
3. Using Internal Categories Directly: While useful for bookkeeping (like "SaaS" or "Email Marketing Software"), the primary tax category based on function is usually Advertising Expense.

Key Considerations for Classifying Mailchimp Expenses

1. Primary Use: Is the service used mainly for advertising/marketing or other operational purposes? This determines the most specific tax category.
2. Payment Structure: Are fees paid monthly/annually (deducted as incurred) or as a significant multi-year prepayment (deducted over the service term)?
3. Ordinary and Necessary: Ensure the use of the service is a common and accepted practice for your business type and is helpful/appropriate.
4. Record-Keeping: Keep invoices and payment records from Mailchimp detailing the service, period covered, and cost.

Tax Implications of Mailchimp Expenses

1. Deductibility: Fees for Mailchimp used for ordinary and necessary business purposes (primarily marketing) are generally deductible.
2. Timing: Deductible in the year paid or incurred (subject to accounting method) for standard monthly/annual plans. Significant multi-year prepayments should be deducted ratably over the subscription term.
3. Reporting: Report deductible costs primarily under Advertising Expense, or potentially Other Business Expenses, on the appropriate business tax schedule (like Schedule C).

How Fyle Automates Expense Categorization and More!

Fyle efficiently manages recurring subscription expenses like those for Mailchimp, ensuring accurate tracking and categorization.

1. Automated Expense Tracking: Forward Mailchimp invoices or billing notifications directly to Fyle via email, or submit payment receipts using the mobile app, Text, or Slack. Fyle's OCR technology automatically captures vendor details, dates, and amounts.
2. Real-Time Card Reconciliation: Link company credit cards (Visa/Mastercard) used for Mailchimp payments to Fyle for real-time transaction feeds and instant matching with submitted invoices or receipts.
3. Automated Expense Categorization: Create rules within Fyle to automatically code Mailchimp expenses to your internal "Marketing Software," "Email Marketing," or "Advertising" categories, ensuring they map correctly to the appropriate GL code for tax reporting (likely Advertising Expense).
4. Seamless Accounting Integration: Fyle syncs categorized Mailchimp expense data directly with accounting software (QuickBooks, Xero, Sage Intacct, NetSuite, etc.), ensuring accurate recording of these marketing/operational costs.
5. Customizable Approval Workflows: If required, route Mailchimp plan upgrades or significant campaign expenditures through approval workflows before payment or reconciliation.
6. Detailed Reporting and Analytics: Utilize Fyle's reporting features to track email marketing software costs over time, compare spending against budget, or analyze costs relative to marketing campaign results.
7. Compliance and Audit Trail: Fyle maintains a secure, digital audit trail for all Mailchimp expenses, complete with attached invoices and payment confirmations, readily available for tax preparation and audits.

Key Clarification: Fyle streamlines the tracking, coding, and management of Mailchimp subscription fees. The business is responsible for ensuring the service meets the IRS "ordinary and necessary" criteria and for correctly handling the timing of deductions, especially for multi-year prepayments, according to IRS guidelines.

FAQs Around Expense Categorization Of Mailchimp Expenses

1. Are my Mailchimp subscription fees tax deductible?

Yes, generally. Fees paid for email marketing services like Mailchimp used for ordinary and necessary business purposes (like customer newsletters, promotions, etc.) are typically deductible, most often as an Advertising Expense.

2. What tax category do Mailchimp fees fall under?

While you might track it internally as "Software" or "Email Marketing," for tax purposes, if used for customer outreach and promotion, the most accurate category is Advertising Expense. If used purely for internal operations, it might be an "Other Business Expense."

3. I paid for a two-year Mailchimp plan upfront. Can I deduct the full amount this year?

No, generally. According to IRS rules for prepaid expenses, if a payment creates a benefit that extends substantially beyond the end of the current tax year (like a multi-year subscription), you typically must deduct the expense ratably over the period the service covers (in this case, over the two years).

4. What records do I need for Mailchimp expenses?

Keep the invoices or billing statements provided by Mailchimp. These should show the service provided, the amount charged, the billing period, and the payment date.