Software and Online Services Subscription

Many entrepreneurs subscribe to online services or purchase software to support project management, accounting, and marketing activities, to name a few. Microsoft Office, Hurdlr, Podio, ZenDesk, Harvest, and Adobe CS all could be considered software or online service subscriptions. Since these platforms are often critical to operations, they are generally fully deductible.


Ian is a web designer with three employees. To keep track of the hours his employees work on each website project, he pays $32 per month for a Harvest subscription. At the end of the year, Ian's Schedule C deduction would be $384 ($32 x 12), more if he paid other subscription fees as well.


Ted is an Uber driver who uses Hurdlr to track his rideshare business's revenues, expenses and mileage in real time. When Ted files his taxes, he can deduct the cost of the Hurdlr app on his Schedule C.


Rico is a freelance photographer who purchased an annual subscription to Adobe Creative Cloud for her business in September. The cost of the license is $49.99 per month. At the end of the year Rico could deduct $200 on her Schedule C for her license (49.99 x 4 months).


Mrs. Oyster is a speaker and author who writes and talks about politics and the economy. She recently purchased a computer that came with Microsoft Office already installed. Rather than deduct the cost of Microsoft Office, Mrs. Oyster would include it as part of her basis in the computer and depreciate the software cost along with the computer. If Mrs. Oyster had instead purchased her Microsoft Office package as an add on she would depreciate the software over 36 months since the software has a useful life of more than one year.


Adel owns and manages a long-term rental property down the street from her primary residence. Recently, Adel purchased an off the shelf Microsoft Excel add in program to help her crunch the numbers to set her new rental rate. Since the software is related to her rental activities and it has a useful life of less than one year, she can deduct its full cost on line 19 of her Schedule E.


  • If you purchase or license software or online service subscriptions and these costs directly support your business activities they will generally be deductible, however, the timing and amount of your deduction may vary.
  • If you purchase a computer that includes software as part of the purchase price, the cost of the software should be included as part of the basis of the computer and depreciated over five years. Alternatively, you may also be able to take the Section 179deduction for your software.
  • If you buy software readily available for purchase by the public and it's useful life is one year or more the cost of the software should be depreciated over 36 months. If its useful life is less than one year it should be fully deducted in the year it is purchased. If you purchase a license for software it should be deducted as a rent expense.
  • If you develop your own software note that both the IRS and financial accounting rules for treatment of your development expenses can be complex. Refer to IRS publications and your financial advisor for guidance.

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