ADVERTISING, OFFICE EXPENSES

Website Expenses

Across all industries website costs to acquire, design, maintain and market your site are common business expenses. Web costs are broad and can include but are not limited to development, programming, domain fees, hosting, and analytics. While many of these costs are deductible, the IRS treats certain website expenses differently. Generally, the money you spend on development may need to be capitalized and deducted over many years, while the money you spend on operating and maintenance can be deducted in the year incurred.

ENTREPRENEUR

Molina is a sole proprietor who recently launched her own cleaning business. Before business activity began, she spent $5,500 launching her website, $3,000 of which went to outsourced development, $1,500 of which went to purchasing a domain name, google adwords and online backup service. Since her operations had not yet begun at the time she paid to have her site developed the $1,500 she spent on incidental web expenses would be considered a start up cost, a portion of which could be deductible in the year her business activities begin (up to $5,000), while any remaining amounts would need to be amortized over a fifteen year period. The $3,000 of website development expenses she incurred would be treated consistent with software and be amortized over a three year period.

PHOTOGRAPHER

Olga is a successful freelance photographer. Last year he paid a developer $35,000 to redevelop his website so he could showcase his photography portfolio to potential clients. His new site launched in March. When Olga files his taxes he would amortize the $35,000 of development costs over a three year period beginning in the month his site launched and deduct $9,722 ($35,000 / 36 months X 10 months (March through December)) in the current year.

TASKER

Jordan is a sole proprietor handyman who has his own business and also sources work through Taskrabbit. During the year, Jordan's contact information changed and he also became a certified electrical engineer. He paid a developer $350 to update this information on his company website. When Jordan prepares his Schedule C, he can deduct the $350 on line 8 or 27a of his Schedule C.

AUTHOR / SPEAKER

Ali is a well respected expert on behavioral psychology who makes a living giving presentations at universities and conferences across the country. Last year, Ali paid a developer $2,500 to develop a new website and mobile app for his business from standard templates. He had no other capital expenditures during the year. At the end of the year Ali was advised by his tax preparer that the $2,500 he spent on website development qualified for the 179 deduction (off-the-shelf computer software), so he would be able to deduct the full development cost in last year's tax return.

MARKETER / COPYWRITER

John’s first step in selling the growth hacking e-book he wrote is setting up an attention-grabbing website. He purchases a domain and hosting plan through Bluehost, paying in advance for the entire year for $165. He also contracts through Fiverr to get a custom Wordpress theme and copy for his website for $150. John can expense the $315 on his Schedule C for website expenses in the first year.

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MORE ON WEBSITE EXPENSES

The IRS has not issued any official guidance on website development so generally rules outlined for software can be applied. Accordingly, in most cases the costs you incur to design and create your website should be capitalized and deducted over a three year period beginning from the date your website launches.
Costs for domain fees, hosting, backup, analytics and regular updates will generally be deductible in the year incurred.
If you incur website expenses before your business begins active operations, costs related to website development should be amortized over a three year period as they normally would be. Costs for otherwise deductible expenses, like domain fees, should be considered a start up cost and special treatment would apply. Refer to our start up costs page for additional details.
You may be able to take a Section 179 deduction or bonus depreciation on website development expenses that would otherwise need to be capitalized. Refer to our Section 179 page for additional details.
Deducting website development expenses is a complicated topic with many nuances. You should consult with your tax advisor to determine the most appropriate treatment for your website development costs.

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