The cost of creating, designing, developing and programming a website is considered a capital asset. According to the International Accounting Standards Board (IASB) through IAS 38 and SIC 3, different stages of website creation should have different accounting treatments. 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 to the content of the website are considered an expense. Maintaining both vendor documentation and internal management documentation is essential to demonstrate that the costs of your website are accurately captured, evaluated and recognized in the organization's financial statements. It can 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 is beneficial to discuss these topics and concepts with the website developer early on to ensure that sufficient documentation is provided. If you decide that your website is primarily for advertising purposes, you can currently deduct the website's internal software development costs as an ordinary and necessary business expense. Generally accepted accounting principles require capitalization of costs when there is a future benefit from the expense. If your website is used for customers to buy items and make a profit, then the tax treatment of your website development gets more complicated.
The company begins capitalizing 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 acquiring or developing hardware and software to operate the website. Before determining the tax treatment of your website development costs, you should determine what you use your website for.