Having an effective web presence is now a crucial component for any business to properly capture the attention of a large audience. A website is often the first place an interested individual will go to learn more about what you have to offer. It’s important that the site securely protect visitor information, properly respond for a mobile or tablet device, perform quickly to give easy access to information, have a professional, up-to-date appearance, and be easy to navigate. Some businesses consider website development to be too large of an investment and neglect critical updates. This can result in a sluggish out of date site with little visual appeal. What they may not know is that there are some tax deductions available for website-related expenses.
In order to use these deductions, the website must serve a business-related purpose, so the deductions described below are not for any websites intended for personal use. Most website-related expenses can be deducted over a three-year period, with the exception of recurring expenses and fees that are typically deducted on a yearly basis.
1.Functionality related deductions (software deduction)
Did you know you can actually deduct website programming and design-related costs created by a third party vendor as a software deduction? When a vendor takes over the website functionality or you purchase a design created by them for your business, you can take advantage of this deduction. The IRS just requires that it be expensed over three years unless the total costs are under $25,000. In this case, you can expense the whole project in the year you paid for it. This type of deduction would qualify as a section 179 deduction. This is a great benefit for businesses, such as nonprofits or charitable organizations, who may have a more limited budget to put towards their website, but want to bring in external assistance to help redesign their site. Take a look at some nonprofit redesign examples here.
2.Graphic design deductions (non-software deduction)
If you want to deduct a purchase that is not related to software on your site, you could claim it as a “useful life” item depending on the number of years you anticipate your business might use this item. For example, if you paid for a business logo, new website imagery, or a few new page designs that you anticipate being relevant to your business for the next say 5 years, you could deduct the total amount paid over that five-year period. This is a great incentive to keep your brand image fresh and visually engaging to your visitors.
3.Advertising deduction
Any sort of promotional content created for your business’s advertising purposes are considered currently deductible, meaning they are deducted within the year that you paid for these services. This is a great incentive to focus on strategizing new ways to increase site traffic, such as social media advertising, email marketing, video ads, and search engine marketing. Take a look at some effective marketing ideas for your website here.
4. Dues and subscription deductions
You can also deduct your business’s website-related fees beyond site design and development. If your business has recurring support-related or hosting fees, you can deduct them as “dues and subscriptions” on your taxes during the year in which they occurred.
5. Other small website content updates or changes
Any sort of small changes made to your site (such as updates to text, minor content updates, small visual changes such as color) can be currently deducted as a business-related expense. Any major design changes or updates would not fall under this category.
If you are a startup business and creating a new site for the first time, the rules on deductions are different, and below are a few different ways to deduct those website-related costs.
Startup costs
You can deduct $5,000 for website- related costs within the first year and anything above that over the next 15 years beginning with the month your business started.
Software deduction for startups
This is the same as mentioned above, and relates to anyone that has a third party vendor take control of designing the site. The costs would be deducted over a three-year period starting from the month the new site launched. The reason you can use this type of deduction as a startup is because you are not creating the software.
It is important to keep your site as up to date as possible to ensure that visitors can continue to engage with your business. Luckily, with a few of these tax deductions, you can realize additional benefits that make regular updates to your site a no brainer.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
Your Custom Website Design Experts
Investing in a custom website design will not only help your business from a tax related standpoint, but will also allow for flexibility through content presentation as your business needs change. Alliance Interactive is a Washington DC based digital agency that provides custom website design experiences for clients in a variety of different industries, including trade, nonprofit, government, medical and real estate.
We work to better understand your business needs and values and create a website experience that connects visitors with your brand, provides an efficient online experience and is responsive across all devices.