You’re a small business. The kid in the stockroom catches you in the hallway one day, again chiding you for not having a website. You’ve resisted long enough. It’s time to call in a pro.
After we get done doing the “boots on the ground” stuff, tax time comes along. You have one big question: Can I take a tax deduction for all the work that went into the successful construction of your Internet presence.
We want to be perfectly clear on this, your accountant will probably be the best one to answer the question, but our research shows that the correct answer is pretty good news.
In most cases, you can deduct what we do from your taxes.
When we’ve surveyed tax professionals, we found out more concerning the tax deductibility of having a third party — like us — do the work.
- Since the website is a necessary and ordinary business expense in the 21st century, it’s a deduction you can claim.
- Advertising, hosting, graphic design and writing content, like a regularly updated blogs by an out-of-shop writer are part of the business expense; so, tick all the boxes.
- One consideration is that ordinary and necessary businesses may be asked if the site creates tangible or intangible assets. In that case, you might need to treat it as an asset. That means your numbers-person will look at it as a depreciated matter. You might consider amortization until you get a redesign. “Might” is an option.
- A couple of examples of amortization fall into certain classifications. Advertising: Tax deductable. Selling assets probably brings into play a something which may be have to be capitalized over as much as 15-years. Don’t do it over that long a period.
- Graphic design is a capital expenditure just as long as the artwork will only have a lifetime of less than a year. That will make it tax deductible. It falls under the IRS’s 12-month safe harbor rules.
Let’s say your website is not an add-on to your existing business. It’s a whole new thing. There’s no brick-and-mortar involved. Basically, you’ve created a new online company. Safe bet is that it’s considered a “start up cost.” That’s a capital asset. On your first return you can count it as a tax deduction. But again, have a professional run the numbers.
So, with that in mind, take these tips to the bank:
- It’s probably not a good idea to amortize it over a 15-year period. Why? Your website is not a thing that’s going to stay unchanged over that long period of time.
- Most likely if you take the “capitalize and amortize” over a three-year period journey, you’ll be safe. Don’t take our word for it. Tax laws always change. Your accountant is the final word on this.
- Modularize your capitalization and amortization. In other words, break-down some things like the site development into actual piece-by-piece tasks: Maintenance Planning Content Construction
Maintenance and content development, like your blog, are most likely the two deductions you can take on an annual basis.
A final note: The Tax Foundation says that Tax Freedom Day will fall on Thursday, April 18th this year. That’s five days later than last year. That magic moment is how long you have to work just to pay your taxes for the year. Anytime you can legally get paid back by the boys in Washington, take it. It ain’t a gift. Not to get political on you, but it is your money, right?