For most freelance businesses deducting website expenses or deducting domain name registration fees happens on the Schedule C. The Schedule C isn’t really that complicated, especially if you use a tax prep program like TurboTax or TaxCut. There is no doubt that a business focused website is tax deductible, however, the question of where exactly to deduct your website and domain expenses is actually kind of a gray area.
Schedule C Business Deductions
First, lets take a look at the Form 1040 Schedule C.
Your standard business expenses get deducted there in Part II. There is no question among tax experts about that is where you deduct your website fees and registration costs. The question is which one of those categories in the Schedule C Part II does a small business website costs go?
The reason there is no definitive answer is that websites can kind of be used for different things, depending upon who you are, and why you are using a website. The other trick is that no matter how you do decide to categorize these business expenses, they could go in a different category. This is not exclusive to website expenses though. There are plenty of things that could be either supplies, or office expense, for example.
For most freelance writers, a very good argument can be made that your main freelance writer business website is advertising. The purpose of the site is to allow people to find you and to showcase your abilities as a writer. This is the very definition of advertising. However, an argument can also be made that your website hosting is a utility of sort. The thought here is that you aren’t paying them to advertise, you are paying them a monthly fee to use the service of hosting your website. That you in turn advertise on it is not what you pay them for. Contrast this to a billboard where the billboard itself, is by nature an advertisement. Your site could just be a general office expense, kind of like a sign in the window. And, of course, there is no reason that if this doesn’t fit, it could be an “other expense” as well.
There is also an argument that your site is more than an advertisement. And, if you have other websites, like I have a personal finance blog, is that an advertisement, or something else? In a way, it’s still an advertisement in that it showcases my experience as a freelance financial writer. In another way, it also generates its own income…
So, what blank should we put domain name registration fees and website hosting fees?
The answer is that it doesn’t really matter as much as you might think.
As it turns out, all of those different places you can deduct your website and domain registration fees result in the same kind of deduction on your Schedule C and income taxes. In other words, there is no difference at all in the final result whether you put it in #8, #18, #25, or #27. To put a fine point on it, if you did get audited by the IRS, and the auditor said you can’t deduct this here, it has to be deducted over here, there would be no change in what you owe, so no penalty or interest, or additional tax, or anything. Maybe, this is why no one has bothered to clarify. In the end, you can put it wherever.
One final note, this all applies to stuff you do. If you hire someone to do website setup, maintenance, or design for you, that is a different expense altogether.
Best Place To Deduct Website on Schedule C
Now, that we’ve established that you can deduct your website costs in any of the four categories, is there a spot that’s better than others?
In my opinion, you never want to give the IRS more information than you have to. If you choose Other Expenses, you have to fill out what those expenses are in Part V. This isn’t bad, per se, because you are completely allowed the deduction, but there is always the possibility that your extra information triggers questions. Or, if you are selected for an extra review, what you input in Part V would be part of that review. On the other hand, the amounts that go in the other categories just get totaled up together and entered as an amount. Any review is just of whether that total number is unreasonable or not.
Which brings us to the final consideration. There is, in theory, a “normal” amount that goes in each of those categories based upon the type of business and the amount of income you have. Again, you are doing nothing wrong to deduct your website expenses, but when it comes to the IRS, less attention is better. The last thing you want to do is draw attention to your return with an abnormally high number in one of those categories.
If you what seems like a regular amount in all of the different categories, then wherever you feel comfortable putting it is fine. If, however, you have a really high one of those categories for other reasons, consider putting your website expenses in another category to avoid ballooning the number even higher.
Finally, if this isn’t your first year of doing taxes, there is some wisdom in keeping those expenses in the same place. After all, if five years worth of tax returns with a few hundred dollars of website expenses in the Advertising category hasn’t set off any alarm bells yet, it probably won’t this year either. On the other hand, a sudden shift of expenses from one category to another just might.
In the end, remember that formally it doesn’t actually matter where you put them because the deduction is the same. The only thing you really care about is not triggering an audit or causing a computer to flag your return for extra scrutiny, and neither is all that common if you aren’t deliberately cheating on your taxes.
This article is intended as educational information only. Nothing in this article should be considered personal tax advice. I am not an accountant or tax advisor of any kind. Consult your tax professional for information regarding your person situation.