The Section 179 Deduction: Can It Be Used For Your Website?

section-179-deduction

IRS Section 179 is a tax deduction designed to cover the depreciation of property. Among the specific eligible property that the IRS enumerates in the code is “off-the-shelf computer software,” defined as ” … any program designed to cause a computer to perform a desired function” so long as it is not a private database.

When combined with allowable deductions for marketing expenses, this creates a potentially potent maximum deduction of $500,000 for any web design/development and internet marketing you’ve paid for in that specific year, so long as you’ve purchased or leased less than $2 million worth of equipment in total. The rules are a bit complicated, however, since the IRS has yet to issue formal guidelines that are specific to website and online marketing costs.

Web Design And Development

The biggest point of contention here is what exactly constitutes “software.” Based on how CPAs tend to file, the generally accepted standard is that the item in question had to be created at least in part with a “scripting” or “programming” language — something like one of the C variants, Java or JavaScript, Perl or Ruby on Rails. If the site is made entirely with a simpler “markup” language, like HTML and XML, it will likely not qualify. The key difference is that the language has to transform, rewrite or interpret data between programs, rather than simply displaying data as HTML does.

That doesn’t rule out deducting a purely HTML/XML/CSS site, however. It may be possible to deduct work in the same year, however this is a very murky area for which you’ll want to talk to a professional accountant first.

If the site clearly qualifies as “software,” then you potentially have an amortization period of three years for deductions beginning with the month the site first went active. If it was created in-house rather than being purchased from a vendor or contractor, you get the added option of deducting the costs in the year that they were paid and accrued.

If you have non-customized software that you are still running that was put in place prior to 2011, the IRS allows it to qualify for the Section 179 deduction intended for equipment and machinery. If it was put in place in 2010, however, the deduction is limited to $250,000.

Website maintenance costs are also deductible as a normal maintenance expense. This includes things like updating the site, editing and fixing software or display issues.

Internet Marketing

If your web content can be considered advertising, it is potentially deductible as a marketing cost in the same year. This includes link building, expenses related to the creation and updating of social media accounts (such as hiring a social media manager or paying for content), pay-per-click or pay-per-impression advertising, advertising account management, and SEO campaigns that take place both on and off your site.

Start-Up Costs

Web development can also be considered a start-up cost if your business is in its first year. This makes you eligible for up to $5,000 in deductions in the initial year, and then additional costs can be amortized over 15 years. Keep in mind that the initial $5,000 deduction is reduced by the amount that these start-up costs exceed $50,000, however.

Given that the Section 179 rules have shifted so much from year to year in recent years, and given insider buzz about it being eliminated entirely, it is VERY important to speak with an accountant or CPA about these deductions before pulling the trigger on them even though it is a simple one-form deduction. However, the terms here are presently valid and no major changes have been announced at this time.

Keep up with our blog for updated information and more helpful advice to supercharge your marketing efforts while keeping your expenses under control.


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