Are website design costs tax deductible?

In today’s digital age, having a website is essential for most businesses. A well-designed website can attract new customers, increase sales, and improve brand recognition. However, website creation can be costly, and companies may wonder if these expenses are tax-deductible. The good news is that, in most cases, website design costs are tax-deductible. Moreover, by ensuring their website is ADA accessible, businesses can qualify for a tax credit under Section 44 of the IRS tax code.

What are website design costs?

Website design costs are the expenses associated with creating and maintaining a website. That includes fees paid to web designers or developers, costs related to purchasing website themes, plugins, or other tools, and website maintenance and updates expenses.

Are website design costs tax-deductible?

The IRS allows businesses to deduct “ordinary and necessary” expenses for their trade or business. That means that the expense must be standard and accepted within your industry and helpful and appropriate for your business. Usually, website design costs meet these criteria and can be claimed as a tax deduction.

However, it is essential to note that website design costs are considered a capital expense rather than a regular business expense. That means the total cost of the website design cannot be deducted from the year it was incurred. Instead, the expense must depreciate over the years.

How to depreciate website design costs?

Depreciation refers to spreading the cost of a capital asset over its useful life. Website design costs are considered capital assets and can be depreciated over a specific period. The specific depreciation period will depend on the nature of the expense.

For example, if a business paid $10,000 to a web developer to create a new website, it could depreciate this expense over five years. That means they could deduct $2,000 per year for the next five years rather than removing the total $10,000 in the year it was incurred.

What website design costs can be depreciated?

Not all website design costs can be depreciated. The IRS considers website design costs that are directly related to the website’s creation, such as web design fees and website theme costs, to be depreciable. However, ongoing website maintenance and update costs are not considered capital expenses and cannot be depreciated.

Moreover, businesses can also potentially qualify for a tax credit under Section 44 of the IRS tax code by ensuring that their website is ADA accessible.

What is ADA accessibility?

ADA accessibility refers to the guidelines set forth by the Americans with Disabilities Act, which requires that businesses make their websites accessible to people with disabilities. That includes ensuring that website content is accessible to people with visual or hearing impairments and that people with mobility impairments can use website functionality.

Why does ADA accessibility matter for tax purposes?

In 2018, the IRS introduced a tax credit for small businesses that make their websites ADA accessible. This tax credit, known as the Disabled Access Credit, provides companies with up to $5,000 in tax credits to help offset the costs of making their website ADA-accessible.

To qualify for the Disabled Access Credit a business must have fewer than 30 full-time employees, and either has earned less than $1 million in gross receipts in the previous year or had a net profit of less than $50,000 in the previous year. Additionally, the business must incur expenses related to making its website ADA-accessible, such as hiring a web developer to implement accessibility features.

How to claim the Disabled Access Credit

To claim the Disabled Access Credit, businesses must file IRS Form 8826, Disabled Access Credit, along with their tax return. Businesses can claim credit for 50% of eligible expenses.

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