Are website development costs tax deductible?

In-house web development You can choose to deduct the full cost of the website in the year it was paid or accrued (depending on your accounting method), or you can choose to treat your website like software and amortize your deductions in three years. Website design costs not considered software costs are deductible according to their lifespan. Therefore, these costs must be amortized over the number of years in which non-software parts of the design are expected to be used in the business. If these non-software parts of the design are expected to have a lifespan of no more than one year, the costs can currently be deducted.

Website design costs that qualify as software costs are deductible under the following safe harbor rules. This favorable treatment is allowed by virtue of the 100% first-year depreciation bonus established by the Tax and Employment Reduction Act (TCJA). Across all industries, the costs of websites to acquire, design, maintain and market your website are common business expenses. But surprisingly, the IRS hasn't yet issued formal guidance on when the costs of Internet websites can be deducted.

If you opt for the position that your website is primarily advertising, you can currently deduct the website's internal software development costs as an ordinary and necessary business expense. When website costs that would otherwise be deductible are currently paid or accrued before a business activity begins, the costs are only deductible upon termination or disposal of the business, unless the person or company that launches the website chooses to amortize these costs for a period of 60 months or more, starting with the real start of the company. If your website is primarily for advertising, you can currently also deduct the website's internal software development costs as ordinary and necessary business expenses. The appropriate fiscal treatment of website development costs can be supported by detailed and descriptive cost allocations, both in contracts and in internal records.

As required by the U.S. Treasury Regulations, you should be aware that the sender does not intend this communication to be used, nor can it be used, in order to avoid sanctions under United States federal tax laws. Web costs are extensive and may include, but are not limited to, development, programming, domain fees, hosting, and analysis. Fortunately, the established rules that generally apply to the deductibility of business costs and the IRS guidance that applies to software costs provide business taxpayers who launch a website with guidance on how to properly treat costs.

The costs of developing websites that do not qualify as software are deducted over their expected lifespan. These factors are how the website was created and whether the website was part of the company's “initial costs”. Packer, manager of the Tax Accounting Group, or the professional with whom you are in regular contact.

Lily Smith
Lily Smith

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