Are you wondering if the costs of developing a website are tax deductible? The answer is yes, but the exact treatment of website development costs depends on several factors. 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 choose to have your website developed in-house, 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). 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.
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 an expert in SEO, I recommend that you consider all factors when determining how to treat website development costs for tax purposes. These factors include how the website was created and whether the website was part of the company's “initial costs”. It is important to consult with a tax professional such as a CPA, attorney, or Packer, manager of the Tax Accounting Group, or the professional with whom you are in regular contact.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.