In the decades since I began working in the web development and digital marketing industry, I’ve received many inquiries from people who are considering hiring a web design agency. One of the most common questions I’m asked is:
“How often should I redesign my website?”
Most people understand that websites are not a one-time, “set it and forget it” expense. As digital assets, they require regular maintenance, and after a few years, they will likely need a complete overhaul to remain aesthetically and technologically relevant. But how often? The issue of website depreciation is complex, but the tax codes implemented by the Internal Revenue Service (IRS) may be able to shed some light. As Trevor McCandless, CEO of Fusion CPA, explains:
“While IRS guidance can be vague in regards to the deductibility of various forms of websites, there are already established rules within the Internal Revenue Code (IRC) that govern the deductibility of both general business costs and software costs. These software guidelines should be used when determining the proper tax treatment of a newly launched website.”
(Side note: It’s important to point out that only some parts of your website can be classified as “software.” While the actual programming language used to build your site is considered to be software, elements like copywriting, logo design, and font licenses should receive a different tax treatment.) The IRC software guidelines for determining website depreciation are split up into two sections: purchased software and self-developed software.
- Purchased software means that an independent contractor designed and developed the website for you, and importantly, will assume the economic risk should the software not function. As purchase software, your website costs are amortized for 36 months from the month in which the website goes live. However, if the total cost of the website is less than $25,000, you may expense 100 percent of the cost within the year the site was launched and paid for.
- Self-developed software means that your website was designed and developed by your own in-house team, and should the software not function, your company would assume the economic risk. As self-developed software, websites may either (a) be deducted consistently as a research and experimental expenditure, or (b) be treated as a capital expenditure that may be amortized over 60 months from the month in which the website goes live.Even if you choose an independent contractor to design and build your site as purchased software, you can technically still qualify for the 60-month amortization
What’s interesting about these software guidelines for website depreciation is that their associated tax treatments are actually quite flexible. For example, even if you choose to go the purchased software route by hiring a contractor, you can technically still qualify for the self-developed 60-month amortization rate. How? By including terms in your agreement with the contractor that you or your company will assume the economic risk should the software not function. While we recommend redesigning your website every 36 months to ensure optimal aesthetics and functionality of this important digital asset, stretching that amortization out to 60 months can be beneficial for some companies.
Learn more about website best practices.