The creation of a completely new website or the development of significant new functionality for that website is usually considered a capital expenditure. Generally, the cost incurred for designing, developing, and programming a website is treated as a capital asset. This is also the time when the company can purchase all the hardware needed to support the website. These purchases will follow existing capitalization policies, will be included in the balance sheet and will be amortized. Despite a detailed accounting guide that describes the different phases of a website project, it can often be difficult to determine which costs correspond to each phase.
The costs of creating a website are usually treated in the same way as computer software if a company uses a third party to design, develop, create and program the website. While professionally designed websites come at a cost, you can deduct several of the costs of developing the website. To determine if website design is a capital expense or a revenue expense, you need to be clear about the terms. Generally accepted accounting principles (GAAP) related to the capitalization of initial costs and website development costs. 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.
The accounting guide for website development costs defines the following project components and recognition criteria. The advancement of technology and the widespread use of the Internet have provided a very powerful means for companies to promote their activities to a wider spectrum of people at a much lower cost. What an organization spends on creating or updating its website is known as website development costs. While the IRS hasn't issued any real guidance regarding specifically the costs of the website, it has provided guidance on software costs. 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. Typical maintenance costs would include updating web pages, correcting minor style or format problems, correcting errors or broken links, or making format changes consistent with font size, types and colors. The amount an organization spends on website development costs depends on the total business they can expect from a well-presented website.
You can choose to deduct the full cost of the website in the year it was paid, or you can treat your website like software and spread your deductions over three years. For example, you can deduct the cost of a photo shoot that will promote or announce a new product on your website. Typical maintenance costs include several costs such as updating web pages, correcting minor style or formatting issues, correcting errors or broken links, making consistent format changes in font size, types and colors.
