Are Internet Marketing Expenses Tax Free?
Most of us are coming to the end our 2013 fiscal year, so it’s time to start thinking about business taxes. Two of the most common questions business owners ask are:
- Are business websites and internet marketing/advertising expenses Tax deductible?
- How are each of these services classified?
The answer is yes, website development and internet marketing/advertising expenses are all tax deductible. Most of these services can be deducted in the same year they are incurred (Section 179 Deduction), but there are a few services with distinct classifications that require amortization. Here is a breakdown of various website and internet marketing/advertising related services and their respective classifications:
Web Design and Development – the classifications of these services depends on when the work was done, who did it and the specifics of the work in found within the invoice.
- If an outside contractor designs a simple template website for informational purposes that does not require extensive custom programming, it can capitalized and amortized based on its “useful life” (usually 3 years) once it is put into service. Depending on your company’s accounting practices, you could also deduct the cost as an advertising expense the same year it was completed.
- Ecommerce sites, built by an outside contractor, that require extensive development and custom programming can be deducted the same year or amortized over 3 years.
- Some specialized programming (C++) is classified as “software” and may be amortized over 3 years or over its estimated “useful life”. Currently, the IRS has not classified HTML work as “software” so theoretically it can be deducted the same year, check with your accountant first.
- Startups, if you build your site before starting your company, you can deduct up to $5,000 in expenses in your first year and extrapolate the rest of the costs over a 15 year period. The 2010 Small Business Act states that for tax years starting in 2010, a business may deduct up to $10,000 in start-up costs.
- If you bought a website you are required to amortize the cost over a three year period.
- Content updates, design updates and ongoing maintenance are considered advertising and can be deducted the same year.
- Hosting, domains, and other similar products are usually deducted the same year.
On-Page and Off-Page SEO (Basic and Ongoing) – both can be deducted in the year they were incurred and are considered advertising expenses.
Link Building – falls under advertising and can be deducted the same year.
Social Media – expenses for creation and ongoing account management are considered an advertising expense can be deducted the same year.
Reputation Management Services – can be deducted the same year
Pay-Per-Click advertising and account management costs – are considered advertising and can be deducted the same year.
Computer Software – these purchases are usually amortized over a 3 year period or based on an estimate of their “useful life”.
Please keep in mind that tax codes and classifications are always evolving, just like all web related marketing products, even the IRS has yet to clarify or address some of these ambiguities, so please consult with your accountant before submitting your paperwork to the IRS.
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