Is Work Performed On A Website Tax Deductible?

Website Tax Deductions

Have you ever had a Online Marketing Consultant bring up the topic of website design or development being tax deductible? Well, if you haven’t, you will read in this blog post about how you may be able to receive some tax deductions for work performed on your website.

Keep in mind that I am a consultant for companies or individuals looking to enhance their online presence. I am in no way an accountant but I have spoken to a few CPA’s and all have verified that a small business can take advantage of tax deductions for developing a new website or enhancing an existing one. The IRS rule, Rev. Proc. 2000-50 , is open for some interruption but basically states that companies can deduct costs associated with developing “computer software”.

Computer Software

The IRS defines computer software as : “For the purpose of this revenue procedure, computer software is any program or routine (that is, any sequence of machine-readable code) that is designed to cause a computer to perform a desired function or set of functions, and the documentation required to describe and maintain that program or routine.”

This definition is vague and open for interruption. Because the IRS associates computer software with “causing a computer to perform a desire function” your CPA may be able to deduct parts of development work performed. This rule DOES NOT allow you to deduct for website design (ie: website templates, banner, buttons, etc.). It can, however, let you take advantage of deductions for programs/components/form that are DEVELOPED with some sort of logic behind them. Your CPA may also be able to deduct for software/programs that have been purchased and integrated into your website if they cause the user to make a desired function.

Unsure if You Qualify? Still Other Deductions For You

Even if the work you’re performing, or performed, doesn’t qualify under Rev. Proc. 2000-50 you may still be able to receive tax benefits for website enhancements under provisions for “promotional and advertising expenses”. You will want to consult with your CPA, but expenses can typically be deducted if “they have a clear relationship to the business and its ability to reach customers, manage its brand image or provide information about its products”. Website design is certainly a way to reach your customer and manage your brand so make sure to discuss any online marketing efforts with your CPA when tax season rolls around.

If you’ve hired a website design freelancer you should read my article “Do I Need To Give Freelancers A 1099 Form? before tax season. If you’re looking to have a website designed or developed, Contact Me for a free consultation. If you have any questions or comments about any tax deductions in this article please leave a comment below!

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