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Tax Deductions on Website Design

June 24, 2014

We all know the various, obvious forms of construction, but there is one that is often over looked that plays an important role in today’s business. Website construction and design is crucial when determining the authenticity of a company. Today, the majority of people will look up a company before deciding to do business with them. It is important to know who you work with, before working with them. Constructing a website that accurately reflects a business’ experience, mission, clients, employees and level of work it provides can be the making or breaking point in gaining new clients.

Being that website creation and renovation is now a common, constant thing a company needs to maintain, it is considered a business investment that can be tax deductible. The IRS has established rules in the past that are considered as pertaining to software costs being applied to web design.

In a recent article conducted by Thomson Reuters/Tax & Accounting, it was stated that the “sophisticated programming languages will qualify as software,” meaning that it will fall under “software guidelines” and considered deductible under “safe harbor” rules. This is only one of the several ways that web design and upkeep can be deducted or amortized (ratably deducted), but it is important to know which route the company is eligible for.

If the website has been purchased by the company or an individual the design costs can be amortized over a three year period. Another option to consider if the website was purchased is when the software was put into service, if it was before 2013 it becomes section 179 property, therefore, eligible for Code Sec. 179.

For companies who have designed the website “in-house” there is the option of claiming the costs as either “currently deducting,” subtracting the costs in the same year they are paid, or using the three year rule.

However, if the web design costs are not considered as software, the costs can be deducted under “useful life.” The company may deduct these “non-software portions” over the expected time the design will be used.

Thomson Reuter/Tax & Accounting’s article continues to explain the variances for the portions of the website that are advertisements, the company can use the currently deductible claim over a “multi-tax period, depending on its useful life.”

For more information on how to correctly deduct your company’s website costs, please visit http://cpa-services.com/Special%20Articles/Deducting%20Business%20Website%20Costs.pdf or get professional help and advice by visiting www.lgt-cpa.com.

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