How to deduct the cost of your website
With the explosion of online businesses, one would think that there would be a standard method of deducting the cost of your business website. However, some questions still exist as to what part of a website is considered software, and to date, the IRS has not fully clarified that issue for tax purposes.
Let’s clarify that our business is designing, building, and maintaining rockin’ websites, not accounting! Nevertheless, we feel that anything related to websites merits a mention in our blog. Here are some quick tips you should know about deducting the expenses of your business investments.
Does your website count as advertising for your business? (Of course it does!) Generally, costs related to website content are considered deductible.
Did you start developing your website prior to launching your business? Now it starts getting complicated. You usually cannot recoup the costs you incurred before your business was activated until you sell or close up shop. However, you can choose to deduct up to $5,000 of the costs in your first year of business and amortize the rest over the next fifteen years.
Did you or a contractor develop your website? Here you may have a choice to either deduct the costs of developing the site in the same year that you paid for it, or by following the accrual model, depending on how your business handles your yearly accounting. You may also be able to amortize the costs over three years.
Did you buy a website? You may be able to amortize the costs over a three-year period starting with the first month of use.
To complicate matters further, there are different rules for “software” and “websites” and if some of your website is considered “software” then different rules may apply. In any case, you should discuss the details of your situation with your CPA or accountant and take advantage of the deductions available to you.
No matter how you approach it, obviously the costs associated with your website are legitimate business expenses and an investment in your business reputation, customer relationship, branding, and sales channels. It’s worth building the most robust and functional site that you can afford and you’ll get some of that investment back as a tax deduction! Go and be profitable, our friends!
If you are considering launching a business website, or updating your existing site, the team at Executionists will be pleased to discuss these insights with you further, and help you implement the above planning steps or others that will help you consider and manage the tax treatment of your website costs. We also know a good CPA if you need one.
Also check out a Serbo-Croatian translation of this blog post at Webhostinggeeks! Web Hosting Geeks University Project has become the Internet’s most widespread web hosting directory to offer free educational resources and scientific material translated from different languages.