The cost incurred to create, design, develop and program a website is included in capital assets. It is also included when the company can purchase all the hardware needed to support the development of the website. These purchases will follow existing capitalization policies. According to the international accounting standards board (through IAS 38 and SIC 3), the different stages of website creation should have a different accounting treatment.
The initial planning stage is an expense and is included in the profit and loss account. The creation of the website must be capitalized as an asset in the balance sheet. Any subsequent updates you make to the content of the website are considered an expense. The accounting guide for website development costs defines the following project components and recognition criteria.
Maintaining both vendor documentation and internal management documentation is key to demonstrating that the costs of your website are accurately captured, evaluated and recognized in the organization's financial statements. Despite a detailed accounting guide that describes the different phases of a website project, in practice it can often be difficult to determine what costs correspond to each phase. Depending on the allocations for a particular year, this could result in a full deduction of the costs of developing your website. It can be very useful to discuss these topics and concepts with the website developer early on to ensure that sufficient documentation is provided.
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. Since he doesn't sell anything directly from his site, Adam needs to include the costs of developing his website in his profit and loss statement. Generally accepted accounting principles require capitalization of costs when there is a future benefit from the expense. If the purpose of your website is for customers to buy things through it and make a profit with those items, then the tax treatment of your website development gets a little more complicated.
The company begins the capitalization of interest when the cost of interest is incurred, construction activities are ongoing and expenses are incurred. Costs incurred during the operational phase include training, administration, maintenance, and other costs to operate an existing website. The development stage of the application and infrastructure of the website involves the acquisition or development of hardware and software to operate the website. Before you begin to determine the tax treatment of your website development costs, you should determine what you use your website for.