Initial expenses may include website development costs, which can be deductible when paid. Generally, regular business expenses such as format changes, content updates, and minor additions to the website can be written off for tax purposes. It is important to plan and formulate a comprehensive strategy to capitalize on the costs of website development. 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 amortize your deductions over three years.
From an accounting perspective, the question is whether the costs associated with developing a custom website should be recorded as a current expense or capitalized as an asset and amortized. The advancement of technology and the widespread use of the Internet have provided a very powerful means for companies to promote their activities at a much lower cost. GAAP requires that some of the costs be spent and others be capitalized, depending on the stage of the website development project. While professionally designed websites come at a cost, you can deduct several of the costs of developing the website. 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. As you can see, accounting for the costs of website development requires strategic decision-making and can involve a number of factors.
For tax purposes, the distinction between internal and outsourced development lies with the person responsible for the functionality of the website. The IRS has provided guidelines for software costs, but not much guidance on specific deductions on websites. A completely new site or an expansion of a new critical utility requires an examination of expenses in different phases of development. What a company or any brand spends on creating or updating its website is known as website development costs. A website is also developed for internal access that can be used to store company policies, customer details and search for relevant information.
For example, you could deduct the cost of a photo shoot that will promote a new product on your website as an advertising expense.
