When it comes to website development costs, the Internal Revenue Service (IRS) has not yet issued formal guidance on when these costs are deductible. However, there are some general rules that can help you determine the appropriate treatment for tax purposes. Generally, you can deduct 100% of regular business expenses for tax purposes. These costs include format changes, such as fonts or colors, content updates, and minor additions to the website.
Other costs associated with websites are the costs of obtaining a domain name and maintaining, updating, or adding to the website. A more conservative approach would be to capitalize on the costs of internally developed software and then depreciate them in 36 months. 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. Typical costs that websites incur include the costs of developing, creating, designing and programming the website, whether you do it yourself or pay someone else for the services.
Maintenance, updating, and the costs of adding to a website are considered normal business expenses and are deductible when they are incurred if these costs are actually of the maintenance type. For example, you could deduct the cost of a photo shoot that will promote a new product on your website as an advertising expense. The IRS hasn't provided much guidance on specific deductions on the website, but it has provided guidelines for software costs. Web costs are extensive and may include, but are not limited to, development, programming, domain fees, hosting, and analysis. We can determine the appropriate treatment to deduct website costs for federal income tax purposes.
The distinction between internal and outsourced development lies with the person responsible for the functionality of the website. You can apply for these deductions in the year the cost was paid or accrued, depending on your accounting method. The company also provides a number of specialized services such as consulting medical and dental offices, cost segregation, business valuation and finance planning.
