As a website designer, I get asked this question all the time; especially in the months of October, November, & December.
The response always starts off the same, "You need a tax guy for that, but how I understand it......" I do try and explain how I understand the IRS's rules on deductions when it comes to website design, but I always finish with, "Now, I am a web guy. I am not a tax professional. Consult a tax professional before doing anything, because I am juuuuust a 'web guy'."
Is my Website Tax Deductible? YES......ish
To my knowledge, the IRS has not, to date, issued guidelines about website development and maintenance costs. Because there is no FORMAL guidelines to if or if/not a website can be deducted as a tax write-off, we have to look for the write-off categories that best align with what a website is, what is does, and if it is considered an asset, etc.
Website Design as a Start-Up Cost
If you are not yet currently in business (aka, starting up/ haven't made any sales) the rules for your website design vary from those whom are currently in business. As a start up, website design would be considered a "start-up cost." Start ups can write off $5000 in the year that the business starts, with anything over $5000 being amortized over a 5 years.
Website Design as a "Code 197" Deduction
Tax Code 197, which governs Amortization of Goodwill & Certain Other Intangibles (which would seem to be best suited towards websites, being intangible and such) states "A taxpayer shall be entitled to an amortization deduction with respect to any amortizable section 197 intangible. The amount of such deduction shall be determined by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired."
The issue here is I would not consider the shelf life of a website something that can be/ should be deducted over 15 years. Honestly, (coming from a website designer) you should update your website every 4-5 years at the maximum.
Website Design When Considered as Software
When website design is considered as Software, it follows the Tax Deduction Guidelines for purchasing Software. Software costs are amortized over a 3-year period starting the month the software is placed for use.
Now, this is something I can get behind! To me, this seems much closer to the mark we are looking for with regards to the length of amortization and the life of a website.
Website Design When Considered as Advertising
This is by far the most favorable of all of the different website tax write-off category routes listed here as advertising costs are currently deductible, deducted in the year of purchase.
This "Advertising Loophole," we will call it, does carry weight but it should be mentioned that only a website that lists / displays products and services (absent a shopping cart, patient or rep portal, etc etc) should be considered advertising (as I understand it).
Lets get a conversation started!
Are you a tax profession? Do you know a tax professional? Comment below if you are a tax prfessional or tag a tax professional you know and lets hear some insight. I did the research, but it is always great to hear it from the source, you know why? Because..........
I am a web guy. I am not a tax professional. Consult a tax professional before doing anything, because I am juuuust a web guy.