Is a Business Website Deductible?

Gone are the days when brokers could rely on a brick-and-mortar business alone to grow their companies. Business websites are a necessity rather than a nice-to-have feature now. But between website design, development and maintenance, business owners incur numerous expenses, raising the question, "Is a business website deductible?" Like with home office deductions, business website expenses have specific allowances and limitations that apply.

When Is a Business Website Deductible?

Despite the ubiquitous presence of business websites in the digital era, the tax code lacks clear-cut verbiage surrounding the deduction of website costs. Instead, it addresses the subject more broadly through established guidelines for deducting business-related software expenses.

Website costs that fall under the "software" umbrella are generally those incurred for features or functions implemented using higher-level programming languages. As these efforts often require technical expertise outside of the expertise of the business launching the website, the business may purchase the website design or development from a third-party web designer or developer who undertakes a degree of risk should the website fail to operate. These third-party software costs can often be amortized, or deducted ratably, by the business, incurring the costs over a three-year useful life period.

Of course, not all third-party-designed websites are treated as software. Those that weren't produced out of sophisticated programming languages are often regarded as "Section 179" property, a special category of depreciable property that qualifies for the Section 179 deduction. This deduction is in itself limited by certain dollar thresholds. After exceeding the thresholds, you are required to revert to deducting and amortizing the costs of non-software website components over the period of their useful life in your business. This could be three years or even less for a simple website that you expect to undergo a re-design in the near future.

Did you design your business website in-house rather than through a third-party web designer or developer? You can either amortize the costs over the useful period of the website or deduct the costs in the current year they were paid or accrued.

Can Business Website Costs Qualify as Advertising Expenses?

In addition to website features and functionality that assist in customer access to or acquisition of your services, business websites often include content like landing pages that exist for the purposes of advertising your services. The portion of website costs that applies toward advertising is generally deductible in the year it was incurred. Other currently deductible business expenses include website maintenance costs, such as those incurred for updating content or modifying website formatting.

What If You Incur the Website Costs in Start-Up Mode?

When deducting business website expenses, either for websites built in-house or through a third party, an important distinction applies if you incur the costs in start-up mode. These costs can often be treated as business start-up costs, which would generally allow you to deduct up to $5,000 in the current year and amortize the remainder over a five-year period.

For more information about deducting business expenses, see IRS Publication 535.

To view the original article, visit the MileIQ blog.