Website Development Costs

[jklcpa]

11 hours ago, Hahn1040 said:

I have a new client who is a fashion blogger.

she tells me it is to further her primary occupation as an architect.  (huh!)

She asked about deducing for her "uniform".  She has to buy clothes for her blog.... has to look the part... etc etc...

I told her, in no uncertain terms,  that clothes are not deductible.... everyone has to wear clothes to work...

I'm sure that many would agree that the twenty somethings indeed wear a "uniform" but it is in no way deductible....:)

thought, don't you think that those of us who work from home should be able to deduct our fuzzy slippers?   we have to keep our feet warm!

I am confident about how to handle the uniform, but not so sure about the $2,500 expense for the web site development..

she does have about $1,000 income from the blog.  

Does anyone have a resource for info on such things?   I would greatly appreciate any suggestions.

 

 

I quoted the post above from another discussion and started its own topic so not to derail the other one that started as uniform and clothing deduction.

Hahn1040, in your client's case, because this is a new business with the end product actually being a video blog, I'd probably be inclined to say that the initial web development costs to get the site up and running are start-up costs. Thereafter, any additional costs of maintaining the site, hosting costs, internet access would be considered ordinary and necessary for your client's business and would be current deductions.

The IRS doesn't provide clear guidance on website development costs because this type of expense can fall into different categories depending on the method and extend of work involved in creating the website, type of business it represents, and the status of the business.

I did a quick Google search and came up with a handful of blogs or posts on larger CPA firm sites, all saying the same thing, actually word-for-word that were apparently copied from the same source with several having updated the stated deduction limits. Here is a link to one of those: http://www.duanemorris.com/alerts/alert3149.html .  Obviously, you would have to substitute and use the current year limits instead of those mentioned in this article.

 

[jklcpa]

I wanted to add that the Industry Specialization Program (ISP) published by the IRS does say that a website development should be capitalized as an asset and amortized (depreciated) over 3 years (exactly like software).

That being said, I still think that it may depend somewhat on the actual business itself and the character of the expenditure in relation to that and the ultimate use of the website. In this case, the business isn't developing the website as a means of advertising and promoting its product or services, or a means of customer contact, the product itself is the video blog.

[Hahn1040]

Thank you so much for this information!  IT is a tremendous help!

[TaxCPANY]

Only when IT answers its pager.

[BulldogTom]

On ‎5‎/‎12‎/‎2016 at 10:34 AM, jklcpa said:

 In this case, the business isn't developing the website as a means of advertising and promoting its product or services, or a means of customer contact, the product itself is the video blog.

I kinda disagree with that statement.  The way a video blogger makes money is to test out products and blog about them.  It is for the purpose of promoting those products so the viewers will go out and buy them after seeing them on the blog.  The blogger can get paid by the company whose products are sold.  So, in a way, the blogger is trying to drive sales.

Tom
Newark, CA

[jklcpa]

Thank you. I thought the question was an interesting one and was the reason I created a topic for it. I was hoping that someone else would join the discussion as I tried to reason this out.

I think I might agree with what you are saying and realize that the blog a a form of advertising for another company's products. The blogger earns revenue from the number of views he or she receives. Is that correct? 

Would you capitalize the website costs with a 3-year life? 

[BulldogTom]

2 hours ago, jklcpa said:

Would you capitalize the website costs with a 3-year life? 

I think I could get behind that.  The cautious approach would be to call it start up costs and amortize under §195 after taking the allowed deduction.  But the 3 year route works for me as well.  Flip a coin, I think I could be talked into either one, depending on the client and the dollars involved in setting up the website.

Tom
Newark, CA

[Hahn1040]

Thanks so much for looking at this for me.

This is what the client said to describe the blog:  "The blog is multi-purpose - serving as my online portfolio for displaying my design work for which I have gotten jobs from and also a research platform I hope to develop further into a business one day."

it is strictly pictures. Frankly, i can't see where she is displaying her design work.  But probably I just don't recognize it...    one can "shop" . She displays items with prices and when you click on them it takes you to the website of the vendor.   None of her income seemed to be a percentage from the sales.

She does make money based on number of views,  However, her income from that this year is just pennies.  My understanding is that when a blog has gained popularity, it will generate significant income.  

here is the link: http://caradisegno.com/ ... if you are interest in looking

again...thanks for the help

[JMovichEA]

Judy,

I have client that spent a small fortune on their website, over 200K. I took the cost amortized over 3 years, but subsequent costs are expensed as website maintenance. I found this article that may help:

 

http://www.bakerandcompany.com/tax-information-for-businesses/tax-treatment-of-website-development-costs/