When it comes to website development costs, there is some debate about whether they should be capitalized or expensed under GAAP. Generally, the cost incurred to create, design, develop and program a website will be treated as a capital asset. This means that the costs cannot be spent or deducted right away. However, there are certain circumstances in which website design costs can be capitalized.
Safe Harbor rules state that website design costs that are classified as software costs are deductible. This means that if a company uses a third party to design, develop, create and program the website, the costs of creating the website will be treated in the same way as computer software. The creation of a completely new website or the creation of significant new functionality for that website will be included in capital expenditures. You can also spend a lot of money on a website with custom-designed graphics and interactive features.
In other words, the cost of formatting a website can be considered a business expense, while hiring a web developer to create a website from scratch can be considered a capital expense.Updates and improvements to the website can also be capitalized, but only if additional functions are added. The capitalization of project costs affects the balance sheet, while its expenditure affects the income statement. According to the text, it can be deduced that the design costs of the products sold should be counted as expenses as indicated above, while the design costs of molds, dies or other tools owned by the supplier must be capitalized unless they relate to a new technology.Professionally designed websites come at a cost, but you can deduct several of the costs of developing the website. Costs are classified as expenses because they are directly related to the accounting period of the current financial year and should not be capitalized.When trying to answer the question of whether or not you can capitalize on website design costs, there are a lot of variables to consider.
It is important to understand how these costs will affect your balance sheet and income statement before making any decisions.