Today, websites are a necessary tool for businesses to achieve success and competitiveness. Even brick and mortar businesses are experiencing a shift to online sales or seeing greater take pleasure in online promotion strategies. As such, the question of whether they’re tax-deductible becomes important, which needs a better study of costs and the way they’re treated within the eyes of the IRS.
So, what costs are related to websites? As with most tax questions, the solution to how the prices are treated is “it depends.” The treatment depends on what sorts of costs are incurred. Typically, costs incurred for the event, creation, design, and programming of a website are going to be treated as a capital asset, which implies that they can not be expensed or deducted immediately. Rather, they need to be deducted over a period of your time.
Although the IRS hasn’t issued any real guidance when it involves website costs specifically, the IRS has provided guidance for software costs. There are some variations to the current rule if the website is developed and created in-house. If done in-house, then the prices may either be deducted within the year the prices are paid or accrued counting on an accounting method used or amortized and treated like computer software. Typical maintenance-type costs would come with costs to update content, add contacts, and proper minor errors or minor style and formatting changes consisting of font sizes, types, and colors. If, however, the prices incurred are to upgrade the website to feature new features like adding pages to the website, adding sales capability, or adding payment capability, then these costs are capitalized. It is also necessary to seem at the price of the content on the website. Some costs could also be currently deductible if they’re considered advertising-type costs.
If the prices are for the event, creation, and style of the website, then the prices are treated like software costs and are amortized over a 3-year period starting within the month the website is placed in commission to be used. If a corporation isn’t eligible to require Section 179 within the current year, then these costs would be eligible for a 50% bonus depreciation. As with any tax question, you must discuss with your tax advisor and supply all pertinent facts and circumstances so the proper treatment is often determined.