Does a Company Pay Tax on SEO Revenue?

Revenue generated through search engine optimization (SEO) efforts is taxable income. This income is not subject to a special “SEO tax” but is treated as regular business income by the Internal Revenue Service (IRS). When your company earns money from conversions driven by your website’s organic search visibility, that income must be reported. The government taxes the profits of a business, not the specific marketing channel that produced the revenue.

The Taxability of Business Income

The IRS is primarily concerned with a company’s net income, which is the profit remaining after all legitimate business expenses are subtracted from total revenues. The source of this revenue, whether from SEO or other sales, does not alter its nature as taxable income. To determine your tax obligation, you must calculate your gross revenue from all business activities. From this total, you subtract the cost of goods sold and all other ordinary and necessary operating expenses to arrive at your net taxable income. This final profit figure is what is subject to income tax.

Deductible SEO-Related Expenses

A business can lower its taxable income by deducting the costs associated with its SEO activities. To be deductible, these expenses must be “ordinary and necessary” for conducting the business, meaning they are common and appropriate for your trade. Proper documentation, such as invoices and receipts, is required to substantiate these deductions on your tax return.

Common deductible expenses in an SEO campaign include:

• Fees paid to marketing agencies, freelance SEO specialists, or consultants
• Subscriptions to software and tools used for keyword research, rank tracking, and site auditing
• Costs associated with creating content, such as payments to writers and graphic designers
• Technical optimizations, like improving website speed or architecture
• Expenses for link-building campaigns

How Business Structure Impacts Taxation

The method for paying taxes on business profits is determined by the company’s legal structure. For a sole proprietorship or a single-member limited liability company (LLC), the owner reports all business income and expenses on Schedule C, “Profit or Loss from Business,” which is filed with their personal Form 1040 tax return. The net profit is then taxed at the owner’s individual income tax rate.

In a partnership or a multi-member LLC, the business files an informational return, Form 1065, “U.S. Return of Partnership Income,” to report its income and expenses. Each partner then receives a Schedule K-1, which details their share of the profits or losses. The partners report this information on their personal tax returns and pay taxes individually.

S corporations also feature pass-through taxation, filing Form 1120-S, “U.S. Income Tax Return for an S Corporation.” Profits and losses are passed to shareholders via a Schedule K-1, and taxes are paid at the individual level. Owner-employees must be paid a “reasonable salary,” which is subject to payroll taxes, before any remaining profits are distributed.

A C corporation is a separate legal and taxable entity from its owners. The corporation pays taxes directly by filing Form 1120, “U.S. Corporation Income Tax Return.” If the corporation distributes its after-tax profits to shareholders as dividends, those shareholders must pay personal income tax on that dividend income, a situation referred to as double taxation.