All Business Costs Are Fully Deductible Right? Why Your Website Costs May Not Be
As a business owner, it is easy to fall into the assumption that all of the costs related to your website are fully tax-deductible, but in reality that is not always the case. Whether speaking of web design, website consulting services, or website software—many costs must be deducted in increments over multiple years as a capital expense. Below are 3 factors to take into consideration in regards to taxes and website expenses.
What Is The Scope Of Web Design?
If a skilled programmer is hired to code a website from scratch, or drastically modify a template-based website in order to meet your customized needs—then the costs are typically deducted over a 3 year period—as either an incurred or capitalized expenses
This is common with e-commerce website, m-commerce websites, and websites with highly specialized features—such as 3D graphics. Template-based web sites with little to no modification or additional coding (even if completed by a web designer) are typically capitalized and deducted in increments over their lifetime.
Is There A Contract?
Oftentimes website software and design is an ongoing work in progress, that is not delivered all at once. On top of that, a website that is complete and fully functional today, is likely to require many modifications and tweaks as both a business grows—and online marketing and website trends change.
For this reason, many website designers do not charge a flat rate—but instead individual fees for each delivered element of a website or website software. This is not to say that the initial website design for a new website will not have a flat fee, but that web design expenses are ongoing.
According to J. Ellis, web designer in Traverse City, MI, “Many customers want to start with a flat fee for the initial investment, knowing that they can pay for updates when and if the need arises.” In instances where ongoing web design services are required, the expenses are typically capitalized and deducted over the next three tax years.
Was The Web Design Part Of The Start-Up Expenses?
The first year a business is in operation, there are a multitude of expenses incurred related to getting the business up and running. This means that website design may fall into this category. As far as taxes go, start-up expenses referred to costs incurred before the business is fully operational.
The 2010 Small Business Act allows many businesses to deduct as much as $10,000 in start-up costs. If applicable, website design costs associated with website design can be included as part of this first year taxed as action. Keep in mind that it may be more advantageous to include other start-up expenses with this deduction. Otherwise, web design costs must be capitalized and deducted in increments over the next 15 years.
The 3 questions above are designed to help small business owners understand how complex tax related deductions can be. This is why many business owners turn to H&R Block online tax filing at tax time.