Tax Implications of Incurring Website Development Costs

The business use of websites is widespread and increasing rapidly as many organizations move away from a traditional brick-and-mortar business model and turn to an online presence for ongoing business activities. This trend combined with the fact that IRS has not issued formal guidance as to the deductibility of website development costs has resulted in confusion. The long-established rules applicable to the deductibility of business costs in general, and existing IRS guidance applicable to software development costs in particular, provide limited guidance as to the proper tax treatment of these costs. As businesses compile their tax information and make decisions regarding the deductibility of these costs incurred or paid in 2008, or enter into contracts for website development activities, care should be exercised so that desired deductibility is achieved.